Sunday, October 28, 2007

HOTS Weekly Options Commentary

HOTS Weekly Options CommentarySocialTwist Tell-a-Friend
Peter Stolcers

Last week, the market tried to recover from the 350+ point Dow Jones drop on Friday. That first round of earnings featured financial stocks and their big write-downs spooked the market. As I mentioned in last week's commentary, I felt that the market would stabilize this week once a broader mix of earnings were released.

Through the course of the week we caught a performance glimpse from many different groups and sectors. The news was good overall and the guidance was decent. If you strip financial stocks out of the earnings picture, corporations have posted a 3% growth rate. That is much better than the flat earnings growth rate has been projected. The market found its footing and about one third of the companies in the S&P 500 have reported.





Next week is the “grand daddy” of all news weeks. We have an FOMC meeting, the Unemployment Report, and the busiest week of earnings releases. I believe the Fed’s dramatic action during the last meeting will give them a "free pass" this time around. They have made it clear that they are carefully monitoring economic conditions and they will do what it takes to keep us from going into a recession. Many analysts are looking for a .25% rate cut. If they don't get it, I feel the market will be accepting if the news includes dovish rhetoric. The dust will settle for a few days and the market will wait for the Unemployment Report. If we do get a rate cut, we will be off to the races.

Last month's employment figures were much stronger than expected. With the exception of the August number, the market has been able to rally after every Unemployment Report this year. I believe the employment picture is sound and the market will rally after the number.

Microsoft has been a dormant stock for many years and on Friday it staged a major breakout. It is a mega cap stock and it could lead the sector higher if it wakes up. Tech has been relatively strong recently and the sector could lead the market higher if the earnings continue to beat. The QQQQ is still only half of its “tech bubble” peak. Financial stocks are weak and the market needs leadership from the tech sector if it is going to stage a sustained rally. In the chart you can see how well the QQQQ has performed. It is bumping up against the relative high and it is poised to breakout.

These are some of the earnings highlights for the week ahead: ASH, CAN, HUM, K, RSH, SCHN, ATHR, FTI, OSG, SOHU, UHS, VTRX, AMED, AVP, BJS, CRDN, CL, ENR, CMC, FPL, RAIL, GT, HLT, MGM, ODP, PG, TEVA, TRW, X, UA, BWLD, CMG, DWA, FIC, GPRO, IVGN, LNET, MCK, RTI, PCU, WBSN, CCJ, CRS, GRMN, KFT, COL, SPW, RIG, WY, ANDE, ABX, XRAY, FMC, MTW, PHRM, TK, AGU, AZN, BDX, CAM, CVS, DNR, XOM, GTI, IGT, MRO, PCS, OSK, ROK, TBL, UTHR, WMB, CLF, CROX, CYTC, ERTS, GES, OII, WLT, WDC, CVX, EDS, IP, OMG, TLM. I see more good than bad in this list and the numbers should have a positive influence on the market.

We are headed into one of the most bullish periods of the year and I expect a year-end rally. Given all of the news next week, the market will find a catalyst to push it to new highs. End of month buying will also help to support prices.

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