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Saturday, June 25, 2011

Market Thought... expectations

Over the past few days I have already stated my position with where the market stands.  The closer we get to the default/no-default vote, IMO, the clearer potential actions become.

The SP500 is sitting near its 1250 support, while the shorter trend SMAs are coming down.  Basically, the market is finding a base here.

Market action will be predicated on a vote.  If Greece votes for the austerity, the market will see a sizable move, breaking the negative 28/32SMA. These SMAs will become positive trending supports again.  With a yes vote in hand, I will quickly cover my SPY protection and add to my long positions.  With earnings, the SP500 goes to 1400 by year end.

If Greece rejects the austerity, there is a sizable gap toward the next level of support. The recent chatter has caused me to take on protection.  Re-enforcing the concept of protection was Sheila Bair stating in a speech last night that 'you just need to bite the bullet sometimes' and restructure.  The willingness on her part to accept the restructuring as a course of action I think suggests the contagion fears are overstated. And while Bair and Dimon differ on the concept of capital requirements, it appears they agree on the potential contagion fears of a default on Greece.

So if a rejection takes place, the SP500 probably has about a 5% move lower, where we will see a huge spike in the Vix. The combined set-up, lacking sizable systemic risk and minimal effect on the global economy, will have an awesome buying opportunity.

With the dust settled, I still think we can get a rally to the 1300-1350 level by year end if there is a no-vote on austerity. (Of course this assumes the US debt ceiling is raised.)

If the SP500 approaches the 320SMA, I will look to add a bunch of names, but a few in particular. (ie IBM, ITRI and POT)

IBM - This is my second largest position, AAPL being the largest. Cramer had a good rant on it the other day. (But I would like to point out that I was behind IBM well before Cramer :)

Now is actually a good time to enter IBM, assuming the austerity gets passed.

ITRI -I really like it here due to its prospects over the next few years. Once the Smart-Grid gets standardized, ITRI will see very nice growth. But if the market goes down, an opportunity to get this thing below 40 is really possible. I will be purchasing this name upon a market decline.

POT - The fundamentals in the Ag business is very intact. The weakness due to commodity price weakness is an opportunity. At the 50 level there is strong support. If the market declines it may test its 47.5 level, which is really strong support. (This is the price BHP offered to buy the company.)

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