Tuesday’s Stock Option Trading Strategy!

October 30, 2007
Author: Peter Stolcers, Founder of OneOption

Dont' today. Use this quiet day to line-up your plays. Yesterday, the market gapped higher on the open. It was helped by good earnings news and massive rallies overseas. All of the Asian markets posted gains in the 3% to 4% range and they established new all-time highs. The market was able to hold the gap; however, the trading range was very tight. Commodity stocks once again led the rally on the notion that global expansion and a weak dollar will fuel earnings. Chinese stocks are very expensive and I prefer to capitalize on their growth using commodity stocks that are trading at very reasonable valuations. These companies control finite resources and they can largely dictate prices. If the Fed lowers interest rates tomorrow, the market will rally. If the Fed keeps rates steady and provides dovish rhetoric, the market will decline initially. That pullback will set up an excellent buying opportunity for a year-end rally. Consequently, I can not justify getting short this market. I believe the only way to play this release is to get long on a breakout, or to wait for support if the market pulls back. This morning, the overseas markets were mixed. China and Hong Kong traded to new highs while the rest of the Asian markets declined slightly. PG missed its number and the Consumer Confidence number came in weaker than expected. All of these factors are weighing on the market. If you look at today's chart you will notice that the market has produced some decent daily ranges, however, it has gravitated back to the opening price level for that day. I expect that same price action to unfold today. The market is in a holding pattern until it gets news from the FOMC. I expect the daily range to be set early in the day. This is a day to line up your longs. I like commodity stocks (energy, mining, agriculture) and I like the companies that service them (equipment, construction, distribution). The rest of the week will be busy, be prepared. image

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