Market Will Breakout: Look for Horizontal Breakouts and Buy Deep In-the-Money Calls

12/05/2014 8:00 am EST


Pete Stolcers, of, shares his market analysis based on this week’s economic news and suggests options traders look for stocks that are breaking through horizontal resistance and buy deep in-the-money calls that are trading near intrinsic value (parity).

Wednesday, the Spyder Trust (SPY) challenged the all time high. The brief decline on Cyber Monday lasted one day and that tells me that buyers are still engaged.

The economic news this week has been excellent. ISM manufacturing, ISM services, ADP, the Beige Book, and initial jobless claims were excellent. Analysts are expecting 225,000 new jobs Friday and anything close will be market friendly.

The Fed is worried about disinflation and it will remain accommodative. Most analysts believe that the tightening timetable has been pushed back. That means that strong economic news will not spoil the rally.

Republicans control the House and the Senate and the debt ceiling will be extended. When this happens, the news could push the market higher.

The ECB, BOJ, and PBOC have been easing. This is providing a tailwind for the market.

Earnings season was excellent and corporate buybacks are at a record level.

I bought a few calls Wednesday and I will buy more Thursday if the market can rally above Wednesday’s close. I sold some call spreads last week and they benefited from time decay. I bought some back Wednesday and I will buy the rest back Thursday.

Look for stocks that are breaking through horizontal resistance. Buy deep in-the-money calls that are trading near intrinsic value (parity). These will move point-for-point with the underlying stock and you won’t be exposed to time decay.

Bullish markets tend to open weak and finish strong. The market has been able to post gains ahead of the jobs report and I believe we will see a grind higher Thursday afternoon.

Keep your size relatively small.

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By Pete Stolcers of

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