Monday’s Stock Option Trading Strategy

Keep your stock option trading at a minimum today. Wait for the market to find support this week and then buy call options on strong stocks. Today, the market is taking a little bit of a breather after making a new all-time high last Friday. Trading is light in this holiday-like environment. The Japanese markets are closed and the banks are closed in observance of Columbus Day. Some traders attribute this pullback to stable interest rates. The strong unemployment report may now keep the Fed from lowering interest rates. While it is true that the Fed is more likely to keep rates unchanged, I'm not buying in to the argument that lower rates are a good thing. The economic numbers have been coming in solid and from my perspective the market got a gift with the last rate cut. Full employment means that consumers can continue to spend and pay their bills. I would much rather have this scenario than one where interest rates are being lowered to support a weak economy. Later this week we will get retail sales numbers. They are bound to be soft, but that has already been factored into the market. We will also get the PPI. Even though I suspect inflation is creeping into our economy, the numbers are painting a different picture. On the earnings front, GE announces Friday and I believe their numbers will fuel the market. They have been posting solid earnings all year and they are benefiting from global growth. This all-time high on the S&P 500 represents a resistance level and we should expect that a breakout will be hard-fought. In the absence of any negative news, the market should forge its way higher this week. There is a good chance that the market will drift lower today and firm up in the afternoon. The tone has been set and on a light volume day it is unlikely that anyone will get in the way of this pullback. Buyers will let the market drift lower and they will wait for support before they add.

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