Stock Option Trading Strategy – Buy commodity calls and buy retail puts.

Stock option trading requires momentum. While that impetus is missing from the market, there are sectors that are on the move. Yesterday, the market had a perfect opportunity to continue its slide in an effort to retest the SPY 149 level. Weak consumer confidence and warnings from the housing and retail sectors pressured prices early. Within the first hour of trading the market recouped most of those losses. This morning, a weak durable goods number was overpowered by news that GM had resolved its labor dispute. The market has been trading higher in a very narrow range. The economic numbers that will be released tomorrow and Friday are backwards looking. Much like today's durable goods number, it is conceivable that weakness is expected and the market will shrug off the data. In the next few days the market will also be helped by end of month fund buying. To a degree, I view the moves this week as noise. There is not really any new information for the market to sink its teeth into. Earnings season is right around the corner and I believe the corporate guidance, not last quarter's profits, will impact the market. If corporations are lowering their expectations, the market will take notice. If there is a substantial increase in unemployment, that could also impact the market. That report will be released next Friday and the bulls hope that last month’s number was an aberration. I have outlined two scenarios that could weigh on the market. That same information could be bullish if signs of a recession are missing. For today, the market has broken its little down trend that followed the FOMC announcement. Prices are grinding higher and in the absence of any meaningful news, they are likely to continue higher the rest of the day. Stay long commodity calls and retail puts. Both sectors have relative strength and weakness respectively. If the market breaks the outlined support or resistance levels, add to the postions that favor that move.

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