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Cook`s Kitchen

Days like today are often gifts. In a strong confirmed up move, you get a bad piece of news that drops the market 2-3% lower on the open. There is only one play: buy with both hands.

And that's what I did before the open. I bought four S&P 500 E-mini futures at an average price of 1,215 (two at 1,220 and two at 1,210).

And now I'm taking some profits above 1,220 because I expect this market to gyrate somewhat as it processes the full impact of Greece "going rogue" and the technical-psychological price damage that's been done to the rally.

At $50 per S&P point in the high-speed vehicle that is a single ES futures contract -- fully five times the leverage of 100 shares of the SPDR ETF (SPY - ETF report) -- you take good profits when they are handed to you, especially when uncertainty prevails and you can get back in this race car at any time.

And I am a buyer again on any dips below 1,215. Because I still firmly believe that the market has built a strong base at 1,200 and we needed to test it sooner or later. This is exactly the kind of fear -- a blow-up like MF Global and more Euro-ugliness -- to test it on.

Here's a chart from my trading platform. The red line at 1,220 is my new long position after taking profit on 2 contracts. Even if the Greek tragedy does persist until some crazy vote in January, I expect the S&P to gravitate back up to 1,250 at least.

By the way, the December futures contract currently trades at about a 4 point discount to the SPX, the cash calculation for the S&P 500 index. This is because the futures contract is a forward derivative of the cash index and therefore takes into account interest rates, dividends, and time to delivery of the futures contract.

This is why you hear the futures referred to as trading above or below "fair value" each morning, based on the prior close of the cash index. This morning's bounce has taken the futures nearly up to 1,229 (I know because my second sell order did not get filled there) and the cash index up over 1,230 as word from Germany and France about their resolve in sticking to the EU summit agreement reassured markets slightly. They will likely not let this single small country hold the Eurozone hostage.

We shall see. In the mean while, it is a good time to be looking at your favorite stocks and buying the fear.

Kevin Cook is a Senior Stock Strategist with Zacks.com

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