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"Fall" is coming: Be Careful !

Last week was another up week for markets with all indexes reaching 10 month high. The positive mood was reinforced by better than expected unemployment report with unemployment dipping to 9.4%. Looks like investors are becoming ready for GDP growth and willing to pay next year's prices now. In last 4 weeks, markets have gone up significantly. While this momentum could continue, it is better to take some profits and keep cash in hand because famous "Fall" months of Sept/Oct are nearby and if history is any guide, these months do bring some excellent opportunities if you have dome dry-powder ready. Here are few steps you can take:
  • If you are up by more than 50% or so, take some profits and keep those profits in cash
  • If you do not want to sell your long-term holdings (for tax reasons), sell "out of money" covered call against these stocks. So even if stocks went down, you would keep the premium. If stocks went up, you would get additional 10-20% upside.
  • Keep a list of quality stocks you want to buy and target prices and there would be an opportunity in next 3 months where you would be able to pick up these stocks at prices mentioned.
  • Here is my list (taken from my previous recommendations): DDR: $6, CBL: $5.5, FIG: $4.5, BAC: $14, GE: $12, PLD: $9, CENX: $8, PCX: $7, HIG: $16, LNC: $18, RF: $4.40, XTEX: $3.40, PDS: $5, KEY: $6 and so on
  • My this week's recommendation would be to stay in CASH or buy some dividend paying preferred shares
Have a good weekend !

/Shyam

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