So Much For Profit Taking. The Earnings Heading Into Tomorrow Could Add To This Breakout!

October 21, 2009
Author: Peter Stolcers, Founder of OneOption

Yesterday, the market took a breather after a mixed bag of earnings. Good news from Apple, Texas Instruments and Caterpillar was not enough to upset weakness in Coca-Cola, United Technologies, Bank of New York and Zions. After the close, SanDisk, Seagate and Yahoo all posted decent numbers and the stocks traded higher. This morning, Boeing, Manpower and Wells Fargo were not bad enough to offset results from Freeport McMoRan and Morgan Stanley. Earnings are flooding in left and right and the overall result has not translated into a market move either way. In general, the news has been very good and stocks should be able to hold current levels. Comps from last year have been easy to beat and in many cases we are seeing revenue growth. The guidance has also been good. I expect this trend to continue throughout earnings season. Good results are priced into the market and gains from this point on will be hard-fought. Interest rates are low, but there will be increased pressure on the Fed to raise rates as year-end approaches. Cyclical stocks and regional banks have not dragged the market down as much as I thought they might. On a case-by-case basis I am seeing some good call selling opportunities in these two groups. We are right up against the highs for the year and the market looks strong. I am selling out of the money puts on emerging market stocks that have performed well relative to our market. I am also seeing good opportunities in asset management companies, tech and energy. This afternoon, the Fed will release the Beige Book. It should show gradual economic improvement and I am not expecting it to have a big impact on the market. It could produce a small rally. Tomorrow, we will get initial claims and LEI. I am not expecting either to drive the market and both should come in close to expectations. From an earnings standpoint, things should shape up well. This afternoon we will hear from eBay and VMWare. We'll also hear from oil stocks, asset managers and fertilizer producers before the open. These companies should have great earnings and solid guidance. Today, I am selling out of the money put spreads. I feel the market will fall into a trading range. Earnings have been great and that is priced into the market. Asset Managers who are under allocated will keep a bid to the market, but they won't reach for stocks after a 60% rally from the March lows. Traders who have profited during this rally will start to take profits. These two forces will offset each other. Bears have been carried out in body bags and short covering will not fuel this market as it has. I expect the market to trade in a plus or minus 5% range the rest of the year. If that happens, Wall Street will be very happy come bonus time. image

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