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The new highs are here! The new highs are here!
I can just envision Steve Martin's character from "The Jerk" running around in his white uniform and white hat screaming about new market highs. Today good news is good news. So, we have good news as good news and bad news as good news. The move is impressive to say the least. It blew my short-thesis concepts out of the water from yesterday on the Russell 2000.
I still am looking at some downside plays. I continue to view the opportunity there in the staples and the utilities. Looking at the Utilities Select Sector ETF (XLU), it is clear this basket of stocks has made a huge run. Some momentum has now come off the group as the risk-on trade is back in vogue. Even if folks get defensive, I think that will include selling more XLU. But I expect any downside to be tempered with the worst-case scenario being a short-term pullback to $38, but the $39-40 area more likely. So, I want to employ a ratio put spread trade on XLU. I am a buyer of the June 41 puts while selling 2x of the June 39 puts against the long put for a cost of $0.34. This sets my profit zone to a level below $40.66 and above $37.35. These are levels I feel very comfortable with using. A more aggressive trader might use a long 1 by short 3 ratio for a cost around $0.08, but they would have to be a very willing buyer below $39 or watch the position closely.
On the long side, I've added shares of Avis Budget Group (CAR). Initially the stock sold off yesterday after its earnings report, but it surged back into positive territory and has continued the trend today. I'm looking for a move over $32 on a breakout of this channel. Stochastics are regaining their upside move, but still have further room to move and the RSI is confirming the breakout of the price. I want to stay smaller here, so I can give this one a stop on a close below $27.