Stock Option Trading Strategy – A retest of SPY 149 is likely – Buy commodity stocks, short retail.

Yesterday the market started off on a very positive note. Throughout the course of the day it continued to slip, finishing in negative territory. This morning, dismal news in the retail and housing sectors weighed heavily on the market. Much of this news has already been priced in and the market quickly rebounded from its opening lows. Stock option traders that have been short retail stocks and the long commodity stocks have been reaping rewards from both positions while maintaining a market neutral position. The rest of the week is very light from an earnings standpoint. Tomorrow, durable goods orders could also weigh on the market. Thursday and Friday there are a number of key economic releases that will influence prices. I believe these reactionary moves will be temporary. Earnings season is right around the corner and I believe it will have the greatest long-term impact on the market. Corporate guidance will paint a picture of economic strength/weakness. As you can see in the chart, the market broke below short-term support. The nice orderly decline after the big FOMC spike suggests that the SPY 149 level will be retested. Given yesterday's small reversal and today's weaker open, I believe prices will drift lower throughout the day. Stay long commodity stocks and short retail stocks.

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