Stock Option Trading Strategy – Long energy calls, add on weakness. Long retail and restaurant puts.

Yesterday the market was not able to add to its early gains. M&A news started the week off on a positive note, but by late afternoon prices stalled. Overnight earnings news failed to impress the market. As I’ve been mentioning, interest rates will remain constant and right now, it’s all about earnings. On the financial front, AXP and CFC are substantially lower and the whole sector is once again under pressure. This sector accounts for 20% of the S&P 500 and without it the market doesn’t have a chance at a sustained breakout. On the cyclical side, PCAR announced good earnings and the stock is trading lower. Heavy equipment stocks have been one of the leading groups. On the tech side, KLAC and APPL are getting hit. Recently, tech stocks have shown strength and the QQQQ has been making new relative highs while the SPY stalled. I have not bought into that move since guidance has not been raised and the rally has been concentrated among a handful of shares. Even energy stocks are feeling the pinch today as oil is down more than two dollars in the last few trading sessions. All of the groups that have been leading the rally are showing signs of weakness after their earnings releases. As I look ahead at the earnings releases slated for the rest of the week, I can’t visualize where the strength might possibly come from. The market feels “heavy” and consequently I believe we will test the SPY 150 level this week. I still like energy and I am long calls on the stocks. If I see a continued pullback in oil, I will add to these positions once prices stabilize. I believe that the hurricane season, the weak dollar and end of the summer vacation driving will keep energy prices high. I am long puts and retail stocks and the consumer continues to show signs of strain. Today, I believe the market will continue to drift lower and close near its low. As a nation, we are in unfamiliar territory as the U.S. is the weakest link in the global economic chain. If not for global expansion, corporate profits would be dismal.

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