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What You Need to Own

What stocks are likely leaders? That's easy. Large-cap technology shares and materials stocks because these sectors are the most likely beneficiaries of the lower U.S. dollar.

A guy walks into his doctor's office in severe pain. He says "Hey, Doc, when I move my arm like this it really, really hurts". The doctor lowers his chin, looks over his spectacles and says, "Stop moving your arm like that". That, and the many obvious variations, might be one of the oldest jokes... but it is as wise as it is old. And, surprisingly, it holds a lesson for stock traders.

I confess, with the exception of the institutional stuff, I don't read or watch a lot of stock market commentary. To be honest, I find the punditry almost a complete waste of time. In an effort to gain attention, these pundits most often make the case why "it is different this time". It has been my experience that it is rarely different.

So, the pundits say that you should short a Republican blowout and short Quantitative Easing Part Two. They make this case despite the fact that statistics show (see my November 1 report) that the stock market rallies in the aftermath of most Congressional mid-term elections. They make this case despite the fact that the market rallied significantly following the Federal Reserve flooding the banking system with liquidity in 1999 and 2009. They make the case "this time its different, just watch".

I have a suggestion for the pundits. If you get blown up every time you make the bet that this time its different, for your own good, stop making that bet!

The rally two days ago through SPX 1184 means that bears are now likely to concede a rally to test the April highs at SPX 1219. There is almost no choice. They will cover short positions. There is a new calculus and that is almost completely based on the fact that the Federal Reserve is determined to inflate the economy.

Now, can the Federal Reserve ultimately fail? You bet, indeed, my guess is the Federal Reserve will ultimately fail, as their plan is little more than an elaborate Ponzi scheme. But, what I believe will ultimately happen is of very little use in the near term. I don't get to set prices. I don't have that power. The market sets prices. Right now, the market believes the Federal Reserve will be successful. Fight the market at your own peril.

What stocks are likely leaders? That's easy; large capitalization technology shares and materials stocks. These sectors are the most likely beneficiaries of the lower U.S. dollar.

Today, I'm going to enter orders for two stocks. My fondness for Apple (AAPL) - Get Apple Inc. (AAPL) Report and Freeport McMoRan Copper and Gold (FCX) - Get Freeport-McMoRan, Inc. (FCX) Report is by now well documented here. These are great stocks for traders because they are predictable. Predictable is good. AAPL had an upside breakout two days ago at 308. FCX should breakout today (Thursday) on a rally through $98.00. I am looking for rallies to $325.00 and $111.00, respectively.

I am buying AAPL December 320 calls and FCX December 105 calls. In both cases, the stocks may need to retreat from their opening gains early Thursday, so be patient, don't chase these options.

TheStreet Recommends

Trades: Buy to open AAPL December 320 calls for $9.60 or less and buy to open FCX December 105 calls for $2.70 or less.

At the time of publication, Terry Bedford was long AAPL stock and short AAPL calls and puts.

Terry is the Founder and President of Bedford & Associates Research Group. Terry writes for AOL Finance and MSN Money and is regularly quoted by the financial media.

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