HOTS Weekly Options Commentary
Pete Stolcers
Last week we had the choppy price action and the bullish bias that I forecasted for the week of option expiration. The economic numbers had little impact on the market. Tuesday was a classic example. The CPI came in lighter than expected and the initial rally was reversed by the end of the day. The real impetus for the week came from option related buy programs. Next week the economic numbers are fairly light and I don't believe the Durable Goods number or the GDP will have a big impact.
The earnings releases will also be fairly light. They are predominantly retail companies. Based on the recent retail sales numbers, the expectation for "light" numbers is already built-in. The overall guidance from these companies might indicate the strength of the consumer. Those companies that miss their number are likely to blame it on the weather and high gasoline prices. Here are some of the companies that will announce:
AZO, BJ, LOW, SNDA, ADI, MDT, GME, MW, ANF, DKS, TGT, GYMB, ZUMZ, MYL, ARO, LTD
The interest rate and earnings front will be relatively quiet so let’s take a look at some of the other market influences. Energy is the hottest market sector. Unrest in Nigeria is driving oil prices higher. Currently that country is our third largest source of oil. The market is oblivious to higher commodity costs and the inflation indicators seem to be keeping a lid on those concerns. M&A continues to keep a strong bid in this market. The shorts are running scared and it has been almost impossible to make money on bearish trades. In the chart you can see that the SPY is close to an all-time high. The market has a parabolic feel to it and it has rallied 22% in less than a year. In the chart you can also see that interest rates contributed to a lengthier decline in 2006. During that period the market wanted the Fed to stop raising rates. That finally happened in August. This year, the rates are stable and the market recovered very quickly. The market is so strong that it erased the losses and made new multiyear highs in the course of a month. This type of setup can lead to a "melt up" and a sharp decline. If that happens there will be plenty of money to be made on the upside, but you'd better be quick to pull the trigger once the peak is established. I have a couple of stocks this week that I believe will rally with the market and hold up well if it declines.
