Is The Soft Patch Over? How To Trade It

We've seen a recent string of better than expected economic reports for June, and it looks as if the economic slowdown we saw in April and May may have been just a soft patch, and nothing more. The Japanese earthquake and tsunami caused more devastation than anyone gave it credit for, and it affected business by a large amount. With the recent better than expected economic reports, it looks as if the slow patch is over, and the economy is beginning to rebound again. It started with the June Chicago PMI, which came in well past expectations, at 61.1, versus estimates of 54.0. Then it went to ISM, which rose to 55.3. Expectations were for a reading of 52.3. The reading was higher than it was in May, which shows that the rebound is on its way. This morning, we saw the June ADP employment come out, and it blew past expectations. The June report came in at 157,000 private sector jobs, versus expectations of 70,000. In addition, the initial claims for July 2 came in better than expected, coming in at 418,000, down from a revised 432,000 from last week. Continuing claims came in at 3.68 million, below the estimates of 3.7 million. It looks as if the slow patch is behind us, and the economy can continue to resume its uptrend, and stocks are moving sharply higher, as evidenced by last week's enormous gains, and the continued uptrend from last week. ACTION ITEMS:

Bullish:
Traders who believe that the economy is likely to continue to improve might want to consider the following trades:

• Caterpillar CAT, which is a beneficiary of a strong global economy, should do well with higher than expected growth around the world. Shares trade at 12 times forward earnings, and sport a 1.7% dividend yield.

• Deere & Co. DE is also likely to benefit for the same reasons, as well as the company's tremendous exposure to the agricultural sector of the global economy.

• Technology is also likely to continue to benefit, and semiconductor stocks like Qualcomm QCOM and Ceva CEVA should benefit.

Bearish:
Traders who believe that the data we are seeing now is just a blip and we will falter again may consider an alternate positions:

• Shorting the transportation stocks, such as CSX CSX, Union Pacific UNP, and FedEx FDX could prove to be profitable.

• Technology would falter, and names like Apple AAPL, Google GOOG are likely to fall sharply on growth concerns.

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