The Unemployment Report Will Be A Bump In The Road!

January 6, 2009
Author: Peter Stolcers, Founder of OneOption

The market is trying to add to last week's breakout and it has hit a small headwind. Prices jumped higher on the open and they pulled back gradually after weak housing data and the ISM services numbers were released. The market has been able to overcome weak economic data in the last few weeks and it will take these numbers in stride as well. The momentum clearly favors the bulls and we are due for a short covering rally. All of the Fed's actions are taking root. Credit markets are starting to loosen up and the differential between T-bills and junk bonds is starting to narrow. That means that investors and financial institutions are more willing to take on risk. Equity markets have been on a steady grind higher and commodity stocks look particularly strong. Oil prices are moving higher and political uncertainty in the Middle East and Eastern Europe will support that move. I've also read that China is importing as much oil as it can. As long as the market holds SPY 92, you can maintain a short-term bullish bias. If you have nice profits, consider taking them ahead of Friday's Unemployment Number. I believe the number will be extremely weak and the market will pull back. That initial decline should represent a nice opportunity to get long. The market has been able to shrug off bad news and I believe it will do so this Friday. The next line of resistance is at SPY 100. If we get a nice rally before the Unemployment Report, I believe that level will be challenged next week. Euphoria ahead of President-elect Obama's inauguration is likely to set in. Shorts know that bear market rallies can be violent and they will be quick to cover. I like day trading stocks from the long side to avoid overnight risk. I also like selling out of the money puts on energy and commodity stocks. This strategy has served me well and I have not taken major heat on my positions. For the time being, consensus is that a financial collapse has been avoided. Confidence is returning to the market and the path of least resistance is higher. Do not construe this as anything but a short-term trading opportunity. The next big move will come on the downside once this rally stalls. Play the bullish side of the market VERY carefully.

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