Today’s Stock Option Trading Strategy – Stay long commodities (metals, ag) and tech ( tele, semis).

October 1, 2007

can be tough when the market lacks direction. The market reacts to “noise” and the chop around.

This morning the market jumped higher without any real catalyst. The European markets made nice advances and many of the Asian markets are closed this week for holiday. NVT has been a rumored takeover target for quite some time and today NOK made a bid for the company. That’s it for the positive side of the ledger.

There weren’t any economic releases and the earnings news had a weak tone to it. UBS and Citigroup are taking big subprime write-downs and WAG missed their number.

I suspect that this rally is a rebound to Friday’s quarterly window dressing decline. As long as there is not any weak economic or earnings news, the market will grind higher. We are now within striking distance of the all-time high on the S&P 500. The Dow Industrials Average has already crossed over into new all-time high territory on an intraday basis. In the chart you can see a number of key support and resistance levels. The market has continued to inch its way back to the highs in July.

I suspect that the market will continue to have a bullish tone this week with trading activity quieting down Wednesday and Thursday. The Asian markets have been screaming higher and we will not have that springboard. Traders will be squaring up for the only real peace of information this week – the Unemployment Report.

The only potential “fly in the ointment” between now and Friday is an earnings warning as we prepare for Q3. Stay long commodity stocks (metals, agriculture) and tech (telecom, semiconductors). You might want to “lay low” on the Chinese ADRs while their market is closed this week. If the Unemployment Report comes out strong, these stocks might be worth buying Friday since there could be pent-up demand for the shares.

For today, look for a quiet range bound market. There is not enough news to push the market to a new all-time high before Friday.
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