If the Market Breaks Out Today – Buy In the Money Calls – If Not – Plan To Shop Next Week

December 5, 2014
Author: Peter Stolcers, Founder of OneOption

Posted 9:45 AM ET - This morning, the Unemployment Report blew away estimates. In November, 321,000 new jobs were created and analysts were expecting 230,000 new jobs. So why isn't the market screaming higher? Personally, I don't trust the government's number. It is typically filled with seasonal adjustments and adjustments to the workforce. I find the ADP report to be much more reliable since they actually process payrolls for small and medium-size businesses. Traders are viewing this number with a skeptical eye. Hourly wages increased and that has some traders worried about inflation. This is the largest input costs for most companies (oil is not even close). States are raising minimum hourly wages and this component will continue to go up in coming months. You will hear rumblings today that strong employment will move up the Fed's timetable for tightening. I don't believe this is true. They know that economic conditions in Europe and Japan are fragile and they are worried about disinflation. This is only one number and the Fed will remain accommodative. That said, I do believe the Fed will remove the statement "considerable time" when it meets on December 17th. Removing the phrase will give them greater flexibility. Factory orders in Germany rose 2.4% and that was better than the .5% analysts expected. This could put a bid under European stocks. China's market has been rebounding. Foreign investors can buy stocks and China is encouraging its people to diversify away from real estate. The Unemployment Report is the last catalyst and the news will dry up next week. If we don't breakout today, we will flat line next week. China's retail sales and industrial production will be released next Friday and that is the next material news. After a choppy open this morning, I expect to see stocks move higher. I don't see any spoilers on the calendar and the market has had time to consolidate recent gains. Seasonal strength should push us higher. If the market can close above SPY $208, buy in the money calls that have a Delta above .8 and that trade near parity. These options will have little exposure to time decay and they will move point for point with the underlying stock. I don't like trading all-time highs and I don't like trading light volume markets. I suggest keeping your size small (10% of normal). Look for the market to grind higher today. I believe we will make a new high. If we don’t breakout today, plan on Christmas shopping next week. Watching the market will be like watching paint dry. . . image

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