Scale In To Commodity Stock Call Options – Keep Size Small.

May 6, 2008
Author: Peter Stolcers, Founder of OneOption

Yesterday, the market pulled back in quiet trading. The Microsoft/Yahoo deal did not go through and higher oil prices also weighed on the market. This morning, the market is showing its resilience. Fannie Mae posted another huge loss of $2.5 billion and it needs to raise $6 billion in new funds. UBS reported an $11 billion loss of and it plans to cut 5,500 people from its staff. Martin Feldstein, president of the National Bureau of Economic Research, predicted the US will slip into a recession. These negative events caused the S&P 500 to drop 10 points on the open. By mid-morning, prices have stabilized and the market is almost unchanged. Considering that oil is making another new high, this market strength has to be respected. Commodity stocks are leading the rally. Tomorrow, we will get the oil inventories number and any relief in oil prices will help. The market is getting used to high oil prices and many theorize that as long as energy prices stay high, global expansion is alive and well. The market is bracing itself for Cisco's number after the bell. It could pave the way for a tech rally. As you can see in today's chart, tech stocks have rebounded nicely during the recent rally and the gains have been holding up. If the market is going to continue to move higher, tech stocks must lead the way. This is a quiet news week and the market will be searching for direction. The path of least resistance is higher and I am expecting choppy trading with the bullish bias. Commodity stocks are the best way to play the rally. They have pulled back, establish support and now they are resuming their long-term up trend. The momentum in the last two days favors the downside, but I am not expecting much of a decline today. The bulls will try to stage a rally into the close. Cisco disappointed the street last quarter and the guidance was discouraging. This stock has been beaten down and a marginal number could have a positive effect. I do not expect the stock to rocket higher, but a $2 rally is possible. This scenario along with a build in oil inventories could push the market back to last week's highs tomorrow. Keep your size small and scale into commodity stocks. image

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