Weekly Recap, December 26, 2008

Market Beating Foresight

The market continues to show resistance at current pricing levels, along with a lower downward trend in volatility. Both trends are encouraging despite a very difficult economy. Next week will bring reports on manufacturing and services, along with consumer confidence and jobless claims. Trading volumes will likely remain low in another holiday shortened week. The other story unfolding next week is the Santa Claus effect which began last week and will run through January 3. Quantitative research suggests that the Santa Claus effect has been responsible for an average market increase of 1.5% from the last five trading days of the year through the first two trading days of the new-year. A net gain for the Santa Claus period is considered by many as positive for the new-year, while a loss is viewed as a negative. We remain hopeful that the market is starting to show signs of stabilizing, although it could remain very bumpy or even rocky over the next few months.

Do we have option tips for investors? We expect the market to swing between a trading range of 825 and 925 over the near term. With that in mind, we may look to buy a call on the market index near 850 or below if the market swings sharply down and we can get in with a good price. We will also look for additional opportunities for writing options, but will only consider those with exercise prices that are more than 10% from current market prices and with very short durations. Volatility is still too high as market swings of more than 5% are still too common, which makes writing options very risky. In addition, we are still not ready to begin buying straight call options on individual stocks as the short term direction of the stock market is still volatile and difficult to predict, and the 3-6 month outlook very uncertain.

Remember, our complete list of options is Available Online At: http://www.marketbeatingstocks.com