Friday’s Stock Option Trading Strategy

Yesterday's reversal created option trading chaos. Fortunately, most of the stock options on our list have bounced back nicely today. Yesterday, stocks got off to a strong start. A rally in overseas markets provided a springboard. The retailers posted generally weak numbers, however there were some pockets of strength. Dismal results had already been factored into prices and many retail stocks rallied on the news. As the day wore on, stocks were not able to add to the gains and a comment from one of the Fed Officials was interpreted to be "hawkish". BIDU was downgraded and the huge decline in net stock spilled over to Chinese ADRs in our market. By late afternoon these events created a full-blown reversal. This morning, the PPI showed contained inflation and Retail Sales numbers were slightly better than expected. The current bounce after yesterday’s sell off seems to be taking hold. MCD provided positive news and GE hit their number. GE is currently trading lower and I had expected that it would rally. Next week we will get an onslaught of earnings releases. I expect most companies to meet estimates and the current projected growth rate year-over-year is 0%. I believe that hurdle will be easily cleared. The wild card is the earnings guidance that corporations will provide. If future weakness becomes a theme, the market will decline. If the earnings and guidance are consistent with the market's expectations, the market will continue to push higher. Next week marks the 20th anniversary of the 1987 crash. I was just getting started in this business and it was a rude introduction. I am not looking for a repeat anytime soon. As the end of October approaches, we will be entering one of the most bullish periods of the year. The market has recovered nicely from yesterday’s reversal. That price action was a reminder not to get greedy. Stay long, but take profits along the way. For today, I see the market grinding higher. The Asian markets held up well overnight and they were able to discount our reversal. The news has been generally good and the market should be able to work higher this afternoon. Energy and basic materials continue to be areas of strength. Stay long those stocks.

Daily Bulletin Continues...