Strong Stocks & Strong Sectors in our Bear Market

I have had success buying puts on stocks that bounce in this bear market. The philosophy is simple, in our bear market, the trend is down. Every time there has been a bounce due to government rumors, stimulus packages, cabinet appointments, etc., while each may result in a temporary rise in the market, the market eventually ends up lower. I will continue to follow this plan. The philosophy has worked well for sectors mostly affected by the recession. Specifically, buying puts in IYR, commercial real estate, KRE, regional banks, and RTH, retailers, has been a great strategy. So, when AZO was moving toward its all time high, I thought it would be a good idea to purchase puts because I have seen so many stocks fail to break out to new highs in this bear market.

However, at the time of purchase, I failed to consider that there are stocks and sectors that are going to take advantage of this bear market, this recession. For instance, the education stocks have had a nice run up, and continue to move higher. And it seems that AZO, and other automotive parts companies, ORLY, AAP, and AN continue to benefit from the recession.

This week will be very important to determine whether AZO continues to soar to new highs, making my puts nearly worthless, or if it will fail to breakout. The past coupe days it has had a huge move up on heavy volume, telling me it has support, which is not good for my position.

Another stock I am thinking about shorting is GMCR. Similar to AZO, this stock has also enjoyed success in this market. And similar to AZO, GMCR seems to be at the top of its channel around 43.



From my experience thus far with AZO, I am going to be patient buying puts on GMCR. I will first see how AZO performs this week, and into earnings next week, before further shorting stocks like AZO, GMCR and other strong stocks within strong sectors in this bear market.