Trade The Wedge Breakout – Don’t Get Greedy.

This morning, the stock market is following through as it adds to yesterday’s gains and option traders should stay long. A weaker than expected durable goods number could not generate much in the way of selling pressure. Analysts had been expecting a decline of 5.1% and the actual number came in at -5.3%. Deteriorating economic activity and an explosive PPI would have cut the legs out from under this market two weeks ago. That is not the case this week. As I pointed out in Tuesday's commentary, the market has been able to breakout above the wedge formation and it feels like a small bid has returned. News that Ambac and MBIA would maintain their AAA credit rating was well-received by the market. This morning, the Fed Chairman is testifying before Congress. He has confirmed that the central bank will remain on course for additional rate cuts. His statements also include very concerning comments about the overall economy. Tomorrow, the market will have to navigate the GDP number. It seems able to shoulder weak economic news at this stage. After two months, the black hole created by subprime debt does not seem quite so daunting. Consequently, I believe that we will see a bounce up to the SPY 144 level. I am not bullish on a long-term basis. I feel that any sustained bounce to that level will eventually set up a good short. There are still many issues that need to be resolved and the Fed and government have fired most of their bullets. For now, continue to stay long commodities stocks. This play has worked out very well and if the market rallies, these stocks will push higher. Remember to take profits along the way. If by chance the market breaks below SPY 133, exit your long positions.

Daily Bulletin Continues...