Wednesday’s Stock Option Trading Strategy!

October 17, 2007
Author: Peter Stolcers, Founder of OneOption

Buying on stocks that are about to announce earnings is risky. I believe there are better plays. Stay with the stocks that are leading the rallies and sell-offs and avoid the crap shoot. Yesterday after the close, earnings from INTC, IBM, YHOO and STX helped to boost tech stocks overnight. This morning, solid earnings from JPM and KO reinforced that move. Foreign markets edged higher overnight and they also provided a sound backdrop for stocks today. The CPI came in as expected and housing starts plunged 10.3% and hit a new 14-year low. The market has been able to discount the economic news ann focus on earnings. The early jump in prices has hit some resistance; however the market has been able to establish an intraday support level. Tomorrow we will get the LEI and Philly Fed numbers. I'm not looking for any fireworks to materialize here as all eyes are focused on earnings. After the close we will get earnings and a from: ALL, ETFC, EBAY, NE, SYK, WM. E-trade and Washington Mutual will be negative due to their subprime exposure, but I suspect that is already factored in to the current price. The other announcements should be positive for the market. Tomorrow morning we will get earnings from: ASD, BAC, BK, BAX, BGG, DHR, LLY, NOK, NUE, PH, RS, STJ, UNH. I can see a bit of strain coming from this group. We already know the banks are taking big write-downs and steel companies have been citing lower demand. I do like healthcare, but these are not some of the strongest names. All told, I believe the earnings releases between now and tomorrow’s open will have a slightly negative bias. For today, the market has established some upside momentum. Now that support has been formed, the market has a chance to grind higher. If it does so, expiration related buy programs will help to push it higher as traders leg out of hedged positions. The strength is in tech and I would look to those stocks for short-term gains going into expiration. As you can see in today's chart, the market has bounced off of a minor support level and the recent breakout has held. I believe greater support lies at SPY 150. Commodity stocks are short-term overbought and I believe staying on the sidelines is best for now. Once they are able to work off this condition, they will be the best place to get along. In that commodity stock category I include companies that produce, distribute or supply that particular group. The major groups are energy, metals and agriculture. For example, in the agricultural arena, DE, MON, POT, BG, QMAR, MOS are all players. In energy, DVN, VLO, FLR, CAM, SII, TK, DO, ATW are all players. These industries are in a high growth mode and that spells profits for producers, suppliers and distributors. This is not an all-inclusive list, you'll find a many more stocks listed in the Daily Report watch lists. image

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