I promised a wild week on Monday and we were not disappointed!

As planned in Thursday morning’s post, we went into the weekend bearish, just 1/2 covered with the DIA May $79 puts at $2.71 (now $1.79) against June $82 puts thathave fallen from $6 to $5 so all is well (down net .50for the week as it was 1/2 covered) and we have rolled along to Sept $83 puts anyway and our 1/2 covers are now officially the May $81 puts. Always we are looking to protect ourselves against a major drop. Since the May $81 puts can be rolled to 2x the May $77 puts, we have plenty of leeway in that position. That is the idea of a good portfolio cover using our Mattress Play Strategy– you want it to work when you need it to but not lose too much money when things go the other way.

My 3:37 comment to members on April 9th was: “Very likely we’ll regret not being more bullish as Asia could fly up on us and Europe could kick off Monday in a reallygood mood and we could gap right up to my 8,200 target for this rally but I never thought we’d hit it without any major pullback.” Asia did, in fact, gap open but not until Tuesday (I didn’t know Monday was closed)with the Hang Seng jumping 300 points at the open and finishing the day up 700 points. Without an Asia boost on Monday, Europe was more restrained and we all flatlined for the day, justifying our slightly bearish stance.

Despite thinking the markets were topping out, the question featured in Dr. Jeremy Seigel’s article was the topic of the weekend:”IsThe S&P Valued Too Low?” After one week of earnings, I’m still leaning to the “Yes” camp but that would be too low for THIS economy – the more relevant question is: Will the economy hold on at these levels and recover and that question is still very much up in the air. Also last weekend, we began a new series on “Setting Up a Hedged Portfolio,” which I just finished a follow-up post to this afternoon. John Mauldin’s “Is That Recovery We See” took the worrying economic side of our debate and if you re-read those two articles now, it’s easy to see why Wall Street sent such a mixed set of signals this week.

We knew what was in store…
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