Friday’s Stock Option Trading Strategy!

October 26, 2007
Author: Peter Stolcers, Founder of OneOption

Fasten your seatbelts. Great trades are just days away. Last week, the market tried to recover from the 350+ point Dow Jones drop on Friday. The first round of earnings that week featured financial stocks and many big write-downs spooked the market. As I mentioned in last week's commentary, I felt that the market would stabilize this week once a broader mix of earnings were released. Through the course of the week we caught a glimpse from many different groups and sectors. The news was good overall and the guidance was decent. If you strip financial stocks out of the earnings picture, corporations have posted a 3% growth rate. That is much better than the flat earnings growth rate has been projected. The market found its footing and about one third of the companies in the S&P 500 have reported. Next week is the grand daddy of news weeks. We have an FOMC meeting, the Unemployment Report, and the busiest week of earnings releases. I believe the Fed’s dramatic action during the last meeting will give them a "free pass" this time around. They have made it clear that they are carefully monitoring economic conditions and they will do what it takes to keep us from going into a recession. Many analysts are looking for a .25% rate cut. If they don't get it, I feel the market will be accepting if the news includes dovish rhetoric. The dust will settle for a few days and the market will wait for the Unemployment Report. Last month's employment figures were much stronger than expected. With the exception of the August number, the market has been able to rally after every Unemployment Report this year. I believe the employment picture is sound and the market will rally after the number. Microsoft has been a dormant stock for many years and on Friday it staged a major breakout. It is a mega cap stock and it could lead the sector higher if it wakes up. Tech has been relatively strong recently and the sector could lead the market higher if the earnings continue to beat. The QQQQ is still at half of its value from its peak. Given the weakness in financial stocks, the market needs leadership from the tech sector if it is going to stage a sustained rally. We are headed into one of the most bullish periods of the year and I expect a year-end rally. Given all of the news next week, the market will find a catalyst to push it to new highs. End of month buying will also help to support prices. I am already lining up my plays.image

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