It was another tough session for our trade alert, but we're still going to keep it out there just in case we get another round of selling. Let's keep the trade the same for tomorrow and then re-evaluate on Wednesday night if we don't get the fill.

 

NEW TRADE ALERT (1)

 

S&P 100 INDEX (OEX)

OPENING 425-415 FEBRUARY BULL PUT SPREAD (10 contracts)

Sell 10 February Puts at 425 strike price

Buy 10 February Puts at 415 strike price

Total Credit 0.40 per contract

Potential Profit $400.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $427.50.

The volatility early in the session helped us go one-for-two in our fills on Monday. The movement helped us get into our second RUT spread for February, but wasn't enough to help us get filled in the OEX spread. For tomorrow, let's leave our OEX alert the same just in case we get another drop on Tuesday.

 

NEW TRADE ALERT (1)

 

S&P 100 INDEX (OEX)

OPENING 425-415 FEBRUARY BULL PUT SPREAD (10 contracts)

Sell 10 February Puts at 425 strike price

Buy 10 February Puts at 415 strike price

Total Credit 0.40 per contract

Potential Profit $400.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $427.50.

It just kept getting uglier. It started on Wednesday and then got worse as the week went on. With politics back front and center in the Market, news out of Washington D.C. caused shockwaves over the final two trading days of the week. From the administration taking on the big banks to the uncertainty surrounding the re-appointment of Fed Chairman Bernanke, the news caused traders to sell fast and sell hard heading into the weekend. All of the political news came on the same week that earnings were supposed to be the driving force behind the Market’s move. From financials like American Express to big cap names like Google, there was a trend of topping expectations last week but still getting hit hard by heavy selling.  The President’s strong warning to Wall Street on Thursday sent shockwaves across the trading floors and certainly stirred things up in a hurry. He threatened to limit risk-taking by banks and to let the government decide what type of investing these financial institutions will be able to do in the future. This ignited the selling on Thursday, which didn’t let up on Friday. Adding to the concerns from Thursday, the final trading day of the week was rocked by news that Congressional leaders are ready to vote against the re-confirmation of the Fed Chairman. Uncertainty is never good for the Market, and we got a good dose of this last week. While we haven’t been the biggest supporters of Bernanke over the past year, we also believe that if he is not confirmed, we’re likely headed to a period where there’s much less independence at the Federal Reserve. The independence and non-political voice of the Fed is something that is certainly in doubt if he is not confirmed. Of course, some of his actions over the past two years have given his critics plenty of ammunition in this area, questioning his objectivity and independence already. Some have questioned whether his support of the Treasury bailouts was because he was trying to get reappointed for a second term. We tend to side with some of these critics, of course it’s always easy to second-guess his actions. But even with this said, we don’t like the political grandstanding that’s going on either. Increased doubts in the economy caused crude to dip for the third straight session on Friday. A struggling economy means less demand for crude. This caused oil to slide another $1.54 on Friday to $74.54 a barrel on the New York Mercantile Exchange. Over the past two weeks, oilshed 10% and appears to be headed lower unless we get something unexpected this week. Let’s keep a close eye on the $70 mark over the next five sessions. Crude followed suit on Friday, but was able to recover some of its losses at the end of the day. Despite this bounce, it still gave up $13.50 an ounce on Friday to finish the week at $1,089 a troy ounce. Friday’s Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
		None.

The Dow Jones Industrial Average suffered its largest loss since the end of October on Friday when the large-cap index tumbled 216 points. This 2.09% loss took the Dow down to 10,172 points and wiped away its gain for the year. This also marked the Dow’s largest three-session drop in over a year. On the daily chart last week, the index broke below its 20-day moving average (light blue line) and its 50-day moving average (red line). While it did close just above another support level on Friday, it’s going to take a sentiment change on Monday to keep this thing from falling farther. 

  The S&P 500 also took a beating last week with all ten sectors falling on the day. While there were only four trading days last week, this didn’t prevent the S&P 500 from taking a 3.9% tumble. It shed 44 points for the four trading days, which included a 24 point drop on Friday that left the index at 1,091 points. The troubling thing on Friday was that the index broke below its 50-day moving average (red line) and then kept moving lower. This week, let’s watch to see if the index can take a break from the selling and retrace.
    The Nasdaq Composite held up the best out of the three major indices last week, but still had a 3.6% drop over the four trading days. It declined 60 points on Friday, falling below its 50-day moving average (red line) to close at 2,205. Similar to the S&P 500’s daily chart, it looks like the next resting stop for the tech-laden index might be from a support level from back in November and December.       
  The wild selling at the end of the week caused the VIX (CBOE VOLATILITY INDEX) to spike by 30%. It jumped 5.04 points on Friday to finish the week back above both its 50-day moving average (red line) and its 200-day moving average (black line) at 27.31 points. If this index keeps moving north, it could mean a lot more trouble for the Market.

Unfortunately, we’re back on political watch instead of watching fundamentals or technicals. We can even throw earnings out the window because who really cares about results or guidance in this type of trading environment. It almost feels like we’re back to a year and a half ago when one eye was on the Market and the other was on Congress. Let’s buckle our seat belts tightly and pick up a case of Dramamine at Sam’s Club because we’re probably going to need quite a bit of it if this type of news cycle continues. The last time we saw this dramatic a move in the VIX was late October (during the November option cycle) when we made most of our put spreads into iron condors. Of course, after a week of selling, the Market quickly reversed and caused us nothing but pain in our new call spreads, giving us our first losing month in a year. Although it feels different this time, we’re very cautious about making the same type of play this month. At this point in time, we’re considering another tactic of adding layers to some of our put spreads. We’ve done this numerous times in the past, especially in the RUT, with plenty of success. This gives us some extra premium and plenty of safety with new spreads at even lower strike prices. For tomorrow, let’s add two layers, one in the RUT and the other in the OEX. We’re going to cut down the number of contracts to 10, but this should help us add some nice premium without much risk. NEW TRADE ALERT (2) Please Note: These are Day Orders and Limit Orders. RUSSELL 2000 INDEX (RUT) OPENING 530-520 FEBRUARY BULL PUT SPREAD (10 contracts) Sell 10 February Puts at 530 strike price Buy 10 February Puts at 520 strike price Total Credit 0.40 per contract Potential Profit $400.00 Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $535.00. S&P 100 INDEX (OEX) OPENING 425-415 FEBRUARY BULL PUT SPREAD (10 contracts) Sell 10 February Puts at 425 strike price Buy 10 February Puts at 415 strike price Total Credit 0.40 per contract Potential Profit $400.00 Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $427.50.

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	170-165		15	0.40
RUT	Bull Put	560-550		15	0.40
OEX	Bull Put	480-470		15	0.45

POTENTIAL PROFIT

$1,875.00

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10) PCLN CLOSED AT $206.31 Today (36.31 points away from our put spread) Profit potential of $40.00 per contract Contingent Stop Order set at $172.50 The movement in Priceline last week was a little ironic. When the Market was strong early in the week, PCLN lagged behind. But when the indices were selling like there wasn’t any tomorrow, PCLN was able to hold its own. The stock was holding up extremely well on Friday until the last hour of trading when it wasn’t able to defy the massive selling across the board. The stock finished the session down $3.84 at $204.20. While we don’t like to see the red finish on Friday, we still like how we’re sitting in this spread with over 35 points separating the stock from our “short” strike price. But even with this said, we still need to monitor the situation very closelyover the next week because the volatility has ticked up dramatically.
RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10) RUT CLOSED AT $617.12 Today (57.12 points away from our put spread) Profit potential of $40.00 per contract Contingent Stop Order set at $565.00 On Wednesday night, it was quite remarkable just how large our cushion was in this put spread. But with two straight sessions of heavy selling, we’ve lost a big chunk of that. On Thursday, the small-cap index broke below its 20-day moving average (light blue line) and then continued heading south on Friday. On the final trading day of the week, the RUT shed 11.24 points to finish the week just above its 50-day moving average (red line) at $617.12. Although we still have a lot of breathing room in our put spread, we want to see the index hold above its 50-day moving average this week. This is the area we’ll be watching extremely closely.

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10) OEX CLOSED AT $502.35 Today (22.35 points away from our put spread) Profit potential of $45.00 per contract Contingent Stop Order set at $482.50 We handled the selling on Wednesday without any concerns, but two more sessions of heavy selling have done some technical damage on the daily chart. The S&P 100 index tumbled through its 20-day moving average (light blue line) on Thursday and then sliced through its 50-day moving average (red line) on Friday. On Friday alone, it tumbled 11.78 points to finish the week at $502.35. While we’re still sitting with a 22 point cushion in our put spread, we certainly don’t like the massive selling momentum that we’ve seen over the past three days. Let’s see if we get some kind of bounce at the start of the new week.

As always, Trade Happy and Trade Smart

Trouble on the earnings front, combined with new anxiety in China, was too much for the Market to overcome today. Stocks tumbled to their worst loss of the year, but were able to rebound this afternoon and pare a good chunk of the losses. Until the rally this afternoon, there was a lot of gloom and doom floating around the Street. But the surge helped ease this anxiety.

 

It was the earnings from IBM that spooked traders early on. Although the company announced decent earnings in the fourth quarter, the stock took a beating. This appears to be the new trend of late; announce good earnings and then watch your stock get whacked. It was large-caps that seemed the weakest today, especially ones tied to global sales.

 

The news out of China, that caught everyone a little off-guard, was word that the government has ordered credit officials to cut back on currency lending. The Chinese appear to be tightening credit as a way to curtail the rapidly growing economy. Tightening credit will definitely help curtail economic growth, especially when combined with the increase in its key reserve requirements (which the country raised last week). While this will help combat inflation, the question is whether or not it will do more damage than good in the long run.

 

In economic data today, the housing market was front and center. According to numbers released by the Commerce Department, construction of new homes and multifamily properties dropped by 4% last month. Today's report of 557,000 (seasonally adjusted) new homes constructed in December was down from the annual pace of 580,000 that was reported one month prior. This shows a slowing trend in housing construction and might signal a shift back towards contraction in the coming months, especially if we see the credit conditions starting to tighten once again.

 

In the other big economic report today, the Labor Department announced a rise in wholesale prices. The data showed an increase of 0.2% in the Producer Price Index (PPI), but this is much lower than the rise of 1.8% reported in November. This news helps weaken any argument for near-term inflation and could help the Fed keep interest rates in check for the time being, especially since Core-PPI came in flat. The chart below shows that PPI has been rising over the past few months while Core-PPI has remained steady. Keep in mind that policymakers are more concerned with the Core-PPI because it strips out the volatile food and energy prices.

 

 

 

 

Graphic from Briefing.com

 

The new bit information out of China means lower oil consumption. This was the main driver behind the falling price of crude today. It shed $1.40 a barrel to finish the session at $77.62 a barrel on the New York Mercantile Exchange. Of course, traders will be keenly focused on tomorrow's Energy Information Administration's report on inventory levels. These numbers will likely be the driving force behind oil's move on Thursday.

 

Today's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 20	08:30	Building Permits	Dec	653K	580K	589K	584K
Jan 20	08:30	Housing Starts	Dec	557K	572K	580K	574K
Jan 20	08:30	Core PPI	Dec	0.0%	0.1%	0.5%

 

It was definitely one ugly morning for the Dow Jones Industrial Average. But a nice rise in the afternoon helped the large-cap index erase nearly half of its losses on the day. However, it still finished the session down 122 points at 10,603. It was good to see the Dow close back above its 20-day moving average (light blue line). Let's see if it can continue to close above this line as well as its support at 10,500 on the daily chart.

 

 

The S&P 500 also was trading below its 20-day moving average (light blue line) this morning before it was able to reverse and head higher. Despite closing back above this line, it still shed 12 points in today's action, closing at 1,138. On the daily chart, we want to see if it can hold above this level as well as the support at 1,130 points. If so, then our OEX put spread should be in great shape.  

 

 

The Nasdaq Composite took an absolute beating this morning. The index sliced right through its 20-day moving average (light blue line) on the daily chart and kept moving south. It wasn't until it hit the 2,270 point area that buyers came back into the index. The good news was that the Nasdaq was able to close well off this level when the bell rang. The bad news was that this still meant a 29 point loss on the day. This led the other major indices to the downside with its 1.26% decline, taking the tech-laden index to 2,291 points. Let's see if the Nasdaq put in its low for the week during today's session.  

   

 

All of the selling this morning meant that the VIX (CBOE VOLATILITY INDEX) was moving higher. Although it did close up 1.10 point at 18.68 points, this was well off its high of the session. It was the afternoon rally that took away most of its gains. Let's continue to watch this index closely because if it starts climbing, that means the bears are creeping back into the Market.

 

 

That's why we throw the spreads out there everyday....even when it looks like a long shot that our trades might get filled. After yesterday's big move to the upside, it appeared that keeping our spreads the same for Wednesday was going to be a futile effort. Of course, that was until the selling engulfed the Market for a majority of the session. The massive selling this morning played right into our hands and helped us get the fills. Then, as if planned perfectly, we got a round of buying late in the afternoon that helped everything move off the lows of the session.

 

Sitting here tonight, we feel really good about our entries in each of these spreads. We certainly would like to have at least five spreads working this cycle, but with a few already filled, we can now take our time on the rest of them. After today's wild ride, we want to sit back and see how the rest of the week unfolds before entering additional spreads. Let's save those maintenance dollars in case we want to add layers to our current spreads or come back with positions in new stocks/indexes. For now, let's go ahead and take a look at how we're sitting heading into the rest of the week.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	170-165		15	0.40
RUT	Bull Put	560-550		15	0.40
OEX	Bull Put	480-470		15	0.45

POTENTIAL PROFIT

$1,875.00

 

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10)

PCLN CLOSED AT $206.31 Today (36.31 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

PCLN is probably our one position that has shown us quite a bit of weakness this week. We were hoping that it would be able to work its way back above its 50-day moving average (red line) on the chart. However, it has really struggled to do so just yet. Instead, it has given us some very large intraday swings, but we used that to our advantage on our entries. Because we have gone so far out of the money in this one, we shouldn't have to be very concerned about wild sessions like today's action. Instead, let's sit back and see if it can regain its upward momentum later in the week.

 

 

 

RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

RUT CLOSED AT $639.61 Today (79.61 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $565.00

The small-cap index wasn't able to avoid all of the pain this morning. Just like the rest of the Market, it was also hit with plenty of selling. The good news was that it was able to take a nice U-turn once it hit some good support on the chart. It finished the session down 9.54 points at $639.61. Despite this loss, we're still sitting with a mammoth cushion in this spread and tons of great support levels on our side. If we get any more selling in this one, we're likely to just come back with another put spread at an even lower level next week.

 

 

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

OEX CLOSED AT $524.73 Today (44.73 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $482.50

Similar to the major indices, the OEX fell below its 20-day moving average (light blue line) this morning, but then was able to find some afternoon strength. The index rallied back above this level, leaving a big chunk of its losses by the wayside. The index finished the session down only 5.48 points. This leaves us very comfortable in this spread for now.  

 

 

As always, Trade Happy and Trade Smart

The Market skids into expiration on Friday. The red on the final trading day of the week caused the indices to encounter their worst weekly performance of the New Year. It was the financials that struggled on Friday, helping to lead the way lower.

 

Troubles in the financial sector on Friday stemmed from the troubles in J.P. Morgan Chase's quarterly earnings. Also on the day, chip maker Intel left the Street disappointed and provided plenty of reasons for the traders to hit the "sell" button. It appears that the extremely low expectations that investors had for most of 2009 is finally wearing off. We'll have to see if this continues to be a drag on earnings in the upcoming week when things really start to kick into high gear.  

 

The session had several economic reports released on the day with the Consumer Price Index probably being the most closely watched. While there was a sizable jump in food prices, there weren't any real surprises on Friday. The index measures the price of goods and services that are purchased by consumers. According to the Department of Labor, the CPI index actually dropped last month with its reading of 0.1%. This was lower than its previous reading of 0.4% last month and was slightly better than what the Street was expecting.

 

At the same time, core CPI (which excludes volatile food and energy prices) also increased modestly last month. Its reading of 0.1% was as expected and helps the index remain in more of a sideways pattern on the chart. While everyone expected both of these indexes to rise substantially in the future, they both appear to be holding in check for the time being.

 

Graphic from Briefing.com

 

In other economic news, the University of Michigan Consumer Sentiment Index came in below expectations on Friday. Ahead of the release, the Street was bracing for a jump to 74.0 in the index. But the actual number came in at only 72.8 for its initial reading in January. This was up just slightly from December's final number of 72.5. While this index rarely translates into actual consumer spending, there's no doubt that the bulls would prefer to see a much higher number, which would mean greater confidence in the economy. The chart below shows the readings have turned to more of a sideways pattern on the chart instead of a rising trend.

 

Graphic from Briefing.com

 

While the equities market was closed on Monday, crude still traded. Although it was certainly a quiet session, oil was still able to rise $0.49 on the day to finish the session at $78.49 a barrel on the New York Mercantile Exchange.

Friday's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 15	08:30	Core CPI	Dec	0.1%	0.1%	0.0%
Jan 15	08:30	CPI	Dec	0.1%	0.2%	0.4%
Jan 15	08:30	Empire Manufacturing Survey	Jan	15.92	12.00	4.50	2.55
Jan 15	09:15	Capacity Utilization	Dec	72.0%	71.8%	71.5%	71.3%
Jan 15	09:15	Industrial Production	Dec	0.6%	0.6%	0.6%	0.8%
Jan 15	09:55	Michigan Sentiment	Jan	72.8	74.0	72.5

 

The Dow Jones Industrial Average suffered its biggest decline of the year on Friday when it tumbled 100 points. The 0.9% loss took the large-cap index off its 15-month high that it hit on Thursday to finish the week at 10,609 points. The index was down much more on Friday before it seemed to find support on the chart and then bounce off an old support area. Let's see if it's able to stabilize this week when the earnings season kicks into high gear.   

 

 

The S&P 500 also pulled back from its new 52-week closing high that it reached on Thursday. It tumbled 12 points to finish the week at 1,136 points. The S&P 500 also pulled back to an old support level on Friday before it was able to find some buying come back into the Market. We'll be watching this week to see if it continues to find support from this same level and its rising 20-day moving average (light blue line). These two seem to be sitting in the same area on the daily chart.

 

 

The Nasdaq Composite also took a beating in Friday's session when it shed 28 points on the final trading day of the week. The tech-heavy index pulled back to its 20-day moving average (light blue line), but wasn't able to get much of a bounce off this line. This has us a little concerned for Tuesday. Just like the other major indices, we want to see if the Nasdaq is able to hold above this moving average, as well as, its next support level on the daily chart.  

   

 

The VIX (CBOE VOLATILITY INDEX) found some strength on Friday, but wasn't able to hold onto most of its gains by the time the closing bell rang. It was able to move up only 0.28 of a point to finish the trading week well below the 20-point barrier at a level of 17.91 points. As long as it stays below the 20-point area, we aren't all that concerned about the selling. Now if it crosses that level, we're going to be a little more interested in a trend change coming.

 

 

 

Well, it looked as if the rest of our traders that were in Google were going to make it to the finish line with the spread intact. That was until the bloodletting on Friday that caused the stops to get dinged. These traders took an average loss of $0.74 per contract. While it was unfortunate to take any loss, this should have allowed these traders to still make a profit on the month. We just wish all of us could have fit into that category.

 

As we said on Wednesday's newsletter, unfortunately the craziness of that stock last week caused some of us to take some unusually large losses due to wild volatility on the open when some of our stop got hit. Not only that, but the wild price swings also caused our auto traders to get filled at all sorts of different prices. As we always do, we're using the average close-out prices from the brokers to fill in our month-ending tallies. Those wild swings meant that some traders will have walked away with a profit last month but others will take on an even bigger loss than we are showing.

 

Keep in mind this is such an unusual month, one that we've never quite seen before, where the close-out debits are so wildly varied. Usually, these prices only vary slightly. Of course, nothing about last month was very typical as far as Google was concerned.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35	3.37

JANUARY LOSS

$2,805.00

 

PCLN 200-190 BULL PUT SPREAD

Profit of $35.00 per contract

RUT 580-570 BULL PUT SPREAD

Profit of $40.00 per contract

OEX 490-480 BULL PUT SPREAD

Profit of $35.00 per contract

GOOG 580-570 BULL PUT SPREAD

Original credit of $35.00 per contract

Close-out debit of $337.00 per contract

Total loss of $302.00

As we said last week, the crazy headlines concerning the problems in China and the drastic drop in the stock overnight is something that rarely happens. Unfortunately for us, it happened at a time that we were sitting with only a 10 point cushion. If you've been with us during the past year, you know that we've traded this stock quite often during our streak of profitable months with ease. It seemed like every month we had nearly a 40 to 50 point cushion in that stock without any worries, month after month. Obviously, that wasn't the case last month.

 

But enough about reliving the pain and suffering from January. It's time to start focusing on how we get that money back and get a new 12 month winning streak going. We're going to go back to our bread and butter with a couple of index spreads. With these spreads, we don't have to worry about one stock's specific news causing a huge overnight drop like we did last month.

 

But even with this in mind, we still have to be a little concerned about the red we saw at the end of last week. We also have plenty of concerns heading into the heart of the new earnings season during this holiday-shortened week. So let's be conservative in our put spreads and place our strike prices well out of the money this month.

 

We're going back to our bread and butter spreads, the RUT and OEX to get things started. We can't remember the last time we ran into any trouble in these spreads from the put side. At the same time, we're able to come in with strike prices that are below several strong support levels on the chart, which should help us in the event that there's any continued selling during the February cycle.

 

We're also coming back with another put spread in Priceline.com Incorporated (PCLN). Although the stock has rolled over on the chart and fallen through its 50-day moving average (red line), this has increased the premiums in the put spreads. We doubt that all of the selling is done in this stock, but we believe that with our strike prices being nearly 40 points out of the money, it is more than enough to get us to another profit in this one. Let's place the trade for tomorrow and see if we get a little selling to help us get filled.

 

NEW TRADE ALERT (3)

 

Please Note: These are Day Orders and Limit Orders.

 

RUSSELL 2000 INDEX (RUT)

OPENING 560-550 FEBRUARY BULL PUT SPREAD (15 contracts)

Sell 15 February Puts at 560 strike price

Buy 15 February Puts at 550 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $565.00.

 

S&P 100 INDEX (OEX)

OPENING 480-470 FEBRUARY BULL PUT SPREAD (15 contracts)

Sell 15 February Puts at 480 strike price

Buy 15 February Puts at 470 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $482.50.

 

Priceline.com Incorporated (PCLN)

OPENING 170-165 FEBRUARY BULL PUT SPREAD (15 contracts)

Sell 15 February Puts at 170 strike price

Buy 15 February Puts at 165 strike price

Total Credit 0.4 per contract

Potential Profit $600

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $172.50.

 

RUT DAILY CHART

OEX DAILY CHART

 

 

PCLN DAILY CHART

As always, Trade Happy and Trade Smart

The Weekend Update will be released tomorrow evening due to the Market being closed on Monday. We delay the release just in case there are any unexpected events that might take place on Monday. Until then, enjoy the day off and we'll have the new spreads released tomorrow night.

Fallout from Google's threat to walk away from China caused us severe pain this morning. The news caused the stock to tumble this morning pre-market, slicing right through our put spread.

 

In the company's statement, Google claimed that it had discovered massive cyber attacks against itself that had originated from China. Evidently, these attacks were serious enough to cause the company to threaten leaving all operations in China and also removing its censoring of Chinese search sites. According to the company, these attacks took place in December. With such a time lag between then and the company's announcement, we wonder if the recent weakness in the stock previously was caused by word of this release leaking out.

 

While we cringed at the thought of exiting a spread on such a gap lower and on news like this, we knew it was the prudent thing to do. Normally, news like this is short-lived, at least initially. However, with China involved and so many variables, it's just too hard to say how things will unfold. With such uneasiness surrounding the situation, we felt it was best to stick with our trading plan and let our stops get triggered. However, for some auto traders, the brokers weren't able to get the orders filled because of the morning volatility. For those auto traders, they are still in the current spread with the same contingency order set for the rest of the January cycle. It's just a shame that everyone was not still in the spread.

 

Today's wicked drop in Google was one of those things that happens only once in a great while. Usually we have such large cushions built up that a 15 to 20 point drop wouldn't crush our spread like it did today. Fortunately, events like this are fairly few and far between. But this doesn't remove the pain from taking such a beating on the exit fills today. The worst thing that could happen was for a stock to open between our two strike prices and that's exactly what happened this morning. This caused us to get hit with such a bid fill on the debit (to close out the position), only to watch the stock finish the day back well above both of our strike prices. We'll talk about this again when we take a look at the fills.

 

Miraculously, the news from Google didn't keep the Market down today. Instead, healthcare and financial names helped lead the indices higher. Traders were closely monitoring testimony from the financial CEOs who were testifying on Capitol Hill in front of a federal commission investigating the financial crisis. While it made for some good television, there wasn't anything new coming out of the hearings other than the CEOs taking heat for their part of the meltdown. As usual, it was a lot of theatre for the public but extremely far from any type of solution except more regulations.

 

Crude traded lower today after the U.S. Energy Information Administration announced a jump in supplies last week. The government data reversed a five-week trend of falling inventories and instead showed a jump of 3.7 million barrels last week. This was much higher than expected and caused oil to finish the session down $1.14 a barrel at $79.65 a barrel on the New York Mercantile Exchange. At the same time, gasoline inventory levels rose 3.8 million barrels last week. This was also substantially higher than expectations and should cause a drop at the pump in the near future.

 

Today's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 13	10:30	Crude Inventories	1/08	3.70M	NA	1.33M
Jan 13	14:00	Treasury Budget	Dec	-$91.9B	-$92.0B	-$120.3B
Jan 13	14:00	Fed's Beige Book

 

The Dow Jones Industrial Average was able to finish the day up 53 points at 10,680. Despite dropping back below the 10,600 point level during yesterday's session, it has been able to close above this support line every day this week. We'd expect this trend to continue as long as we don't get bombarded with bad earnings reports.    

 

 

The S&P 500 also cruised to a nice gain after overcoming the weakness early in the day. It finished on Wednesday up 9.93 points at 1,146. It has been able to hold above the new support level at 1,130 points on the daily chart and is once again pushing towards a new 52-week high. Let's see if it takes out the high from Monday during the next two trading days.   

 

 

The troubles with Google in China seemed to be a distant memory for the Nasdaq Composite this afternoon. The tech-laden index overcame its early morning troubles and found itself up 25 points by the time the closing bell rang. This rally wiped away all of yesterday's losses after reversing at its 20-day moving average (light blue line) on the chart. Let's see if it continues to rise from today's closing price of 2,307 points.

   

 

After yesterday's huge rise in the VIX (CBOE VOLATILITY INDEX), it looked like it was going to be more of the same this morning. However, that didn't hold true. The rally in the Market caused the "fear" index to dive this afternoon. The VIX finished the day off 0.34 of a point at 17.90.

 

 

How much pain could China cause us? Way too much! We got the dreaded close-out with the stock sitting between our strike prices and our fills. While we believe we can make our way out of the hole in a month or two, it's definitely not the way we wanted to start 2010.....that's for sure. For those auto traders still in the position or any other traders that did not exit the trade today, there's still a chance you might be able to make it to the finish line in this one.

 

Looking back at the daily chart, perhaps there was some insider trading or something leaking somewhere (about this announcement) that caused the stock to take a dive late last week and early this week. The reason it didn't spook us is that we've lived through moves like that time and time again without something like this taking place. But who would have thought something like China was on the horizon. Obviously, somebody must have known something ahead of time. But that doesn't really help us now.

 

Last night, we still had a ten point cushion that wasn't concerning us too much with the stock sitting above its 50-day moving average. But news like this morning is just impossible to plan for. When the story showed up on the front page of The Wall Street Journal this morning, we knew it was going to be a bad day. While we could talk about this one for another ten pages or so, let's go ahead take a look at the other spreads we have still working for us; as well as take a look at the Google spread for those members still in them. In the weekend newsletter, we should have all the final tallies from all the brokers.  

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35

 

PCLN 200-190 BULL PUT SPREAD (15 Contracts entered on 12/29/09)

PCLN CLOSED AT $214.30 Today (14.30 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $202.50

Priceline took a nose-dive this morning just like the rest of the tech names. But after the initial plummet, it was able to bounce back nicely the rest of the trading day. It finished the session with a small gain of $0.32 with its closing price of $214.30. The stock was able to make it back above its 50-day moving average (red line) and should be able to make it to the finish line with our strikes intact. Of course, that's unless it decides to not do any business in China tomorrow morning......then all bets are off.  

 

 

RUT 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

RUT CLOSED AT $643.56 Today (63.56 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $585.00

Our RUT spread turned out solid again this month. The index tested a support level this morning but then reversed and headed higher. It finished the day up $8.06 at $643.56. This gives us plenty of breathing room in this position with time running out. Another month and another profitable RUT put spread.

 

 

 

OEX 490-480 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

OEX CLOSED AT $527.93 Today (37.93 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $492.50

The OEX also traded in a wide range today, but we like the ending result. The index rose 3.64 points and increased the cushion in our put spread. With time running out in this one, it looks like it's going to be another uneventful expiration for this position.   

 

 

GOOG 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09 & closed on 01/13/10)

GOOG CLOSED AT $587.09 Today (7.09 points away from our put spread)

Original credit of $35.00 per contract

Contingent Stop Order set at $482.50

Google gave us a big old case of heartburn this morning when we saw the futures tank. While we knew it was going to be ugly based on how the stock traded after hours yesterday, we thought it had made a little recovery when it stopped trading last night. That was all for none this morning with the stock taking a bath right from the beginning. For those traders still in the position, let's keep the stop set at the same place but see if that 7 points of breathing room can get us to the finish line. For the rest of us, let's lick our wounds and then start getting that money back next month.   

 

 

As always, Trade Happy and Trade Smart

Despite a troublesome jobs report on Friday, stocks rally late in the day. The highly anticipated non-farm payrolls couldn't keep the Market down last week. While the subpar report dampened hopes of a stronger recovery, the bulls showed up late in the trading day on Friday, helping the major indices to finish the week in positive territory.

 

The move higher on the final trading day of the week was a little in doubt after the disappointing non-farm payrolls were released. Ahead of the release, the Street was looking for a flat reading for December. But unlike expectations, the actual report showed a loss of 85,000 jobs last month.

 

The only bit of good news in the release was that November's job loss had a positive revision. The government revised its previous report to show an actual gain of 4,000 jobs in November. This was the first report of jobs being added to the economy and was certainly better than the loss of 11,000 jobs that was originally reported. However, the chart below shows the turnaround last month with jobs once again being removed from the economy in December.

 

Graphic from Briefing.com

 

The revision in the previous month's job report probably helped keep the unemployment rate from rising last month. As expected, the nation's unemployment rate held steady at 10.0% in Friday's release. While this was better than an increase in the rate, keep in mind that it still stands near a 26-year high.

 

Graphic from Briefing.com

 

It was a flat session for the price of crude on Friday. It settled up a mere $0.09 a barrel higher at $82.75 a barrel on the New York Mercantile Exchange. While crude struggled, gold moved higher. Thoughts of interest rate hikes in the future helped the shiny metal to rise $5.10 an ounce to finish the week at $1,138.20 a troy ounce. Of course, it was also helped by the weakness in the dollar.

Friday's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 08	08:30	Average Workweek	Dec	33.2	33.2	33.2	--
Jan 08	08:30	Hourly Earnings	Dec	0.2%	0.2%	0.1%	--
Jan 08	08:30	Nonfarm Payrolls	Dec	-85K	0K	4K	-11K
Jan 08	08:30	Unemployment Rate	Dec	10.0%	10.0%	10.0%	--
Jan 08	10:00	Wholesale Inventories	Nov	1.5%	-0.3%	0.6%	0.3%
Jan 08	15:00	Consumer Credit	Nov	-$17.5B	-$5.0B	-$4.2B	-$3.5B

 

Friday's late-day rally in the Dow Jones Industrial Average helped the large-cap index secure a winning week. For the first five trading days in 2010, the Dow is up 190 points. The strong start helped put the index up 1.82% for the New Year while breaking through another decent resistance level on the daily chart at 10,600. Friday's advance of 11 points helped the Dow finish the trading week at 10,618 points. Let's see if it can continue moving north next week.   

 

 

The S&P 500 fared even better than the Dow last week when it climbed nearly 30 points over the first five trading days of 2010. Friday, it rose 3 points to finish the week at 1,144 points while marking its best weekly performance in two months. This also puts the S&P 500 up 2.68% for 2010, now that's not a bad start to the New Year. On the daily chart, it also broke right through the old barrier at 1,140 and just kept moving north. Let's see if this continues as we enter the new week.  

 

 

The Nasdaq Composite struggled for the last few trading days, but turned that around on Friday when it surged 17 points. This helped the tech-laden index finish the week up 2.12% while sitting above a resistance level with its closing price of 2,317. Let's see if it's able to hold onto this momentum as we start the new trading week.   

   

 

Friday was another significant session for the VIX (CBOE VOLATILITY INDEX). The "fear index" fell to another significant low on Friday when it tumbled 0.93 of a point to finish the week just above a 52-week low at 18.13 points. Another session like Friday's and the VIX could slice right through the 18 point level.

 

 

We had one spread giving us a lot of concern last week, but even this one was able to turn things around Friday afternoon. Google had a rough stretch last week but the rally on Friday afternoon now leaves us in pretty good shape heading into the final trading week of the January option cycle. As long as we can keep tech from another sharp sell-off this week, we should be able to coast to a nice profit for the first cycle of 2010.

 

However, this week does mark the beginning of the earnings season, which could provide a bumpy path to the finish line for us. The good news is that our index spreads are sitting so far out of the money that we shouldn't have any concerns in those positions. Let's keep a close eye on tech because that's the only real concern for us this week. With that said, let's take a look at how we're sitting in each position heading down the home stretch.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35

CURRENT PROFIT POTENTIAL

$2,250.00

 

PCLN 200-190 BULL PUT SPREAD (15 Contracts entered on 12/29/09)

PCLN CLOSED AT $216.21 Today (16.21 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $202.50

Priceline made a nice move to the upside on Friday around the noon hour, but then couldn't hold onto a majority of its gains by the time the closing bell rolled around. Unlike most stocks that surged late in the day, PCLN was only able to cling to a $0.08 gain at the close, leaving the stock 16 points above our "short" strike price at $216.21. On the daily chart, PCLN has found some support from a low in the middle of December. As long as this level continues to provide support this week, we should be in good shape. We also like the fact that its 50-day moving average (red line) continues to rise on the chart. This line should also be some nice support for the stock in case there's more selling. We like how we're sitting in this one.  

 

 

 

RUT 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

RUT CLOSED AT $644.56 Today (64.56 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $585.00

We really couldn't ask to be sitting much better in this spread heading into the final week of trading. The small-cap index continued to break through old resistance levels on the daily chart, helping to extend the cushion in our put spread. With us now holding nearly 65 points of breathing room in this spread, we shouldn't have anything to worry about this week.

 

 

 

OEX 490-480 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

OEX CLOSED AT $527.76 Today (37.76 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $492.50

The OEX also continued to march higher on Friday, making us even more comfortable in this position. The index advanced 1.42 points on the final trading day of the week, leaving the OEX at $527.76. With time running low, we should be able to coast to the finish line in this one with ease. We don't see anything to concern ourselves with in this position.  

 

 

GOOG 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

GOOG CLOSED AT $602.02 Today (22.02 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $582.50

Google was the one position causing us to take notice last week when it started to tumble on Wednesday and continued to sell-off through the beginning of Friday's session. However, it rallied nicely about a half hour into the trading day on Friday and then kept moving higher. It finished the day up $7.92 at $602.02. With the company set to release earnings in 11 days, we don't see this one falling much farther. We'll continue to monitor this one closely this week, but we really don't mind where we're sitting in this one for the time being. But even with this said, make sure your contingency stops are set just in case something unforeseeable happens. It's always better to be safe than sorry. 

 

 

As always, Trade Happy and Trade Smart

Stocks finish the day flat, but up nicely so far in 2010. We expected the "January Effect" to happen at the beginning of the week and it didn't disappoint. This is when investors that sold equities at the end of last year for tax reasons decide to put that money back into the Market during the first few trading days of the New Year. This gave us a nice pop on Monday and stocks haven't given back all that much since then. Today was a fairly quiet session with the indices finishing the day not too far from where they started.

 

Traders weren't too fond of this morning's lackluster ISM data. The reading for December came in shy of expectations and this seemed to dampen the mood on the Street. According to the Institute for Supply Management's services index, the U.S. services sector remained flat with a reading of 50.1 in December. Although this was up from November's 48.7, any reading below 50 means contraction while a number above it signals expansion. Today's reading appears to be right on that fence and didn't really cause much of a reaction. Of course, it was a little disappointing because analysts were looking for a reading of 50.5 for December.

 

Graphic from Briefing.com

 

The other big news this morning was from the ADP Employment Services report, which is often used as a gauge of how the non-farm payrolls will come in on Friday. This morning's data from ADP showed a smaller-than-expected loss in the private sector in the month of December. The company announced a loss of 84,000 jobs last month while also revising the prior month's numbers to show a loss of only 145,000 jobs in November. December's job loss was the smallest number since the spring of 2008.

 

This afternoon, the minutes from the Central Bank's December meeting were released. The notes showed that some policymakers wanted the committee to expand its $1.25 trillion program to buy mortgages. This was in conflict with the current plan to start closing out the program starting this spring. The release of the FOMC minutes didn't have a very large impact on trading this afternoon. It mostly affected treasury prices, which fell due to the inflation worries.

 

The price of crude rallied today despite a surprising build in supplies. The Energy Information Administration announced an increase of 1.3 million barrels last week. This was quite a contrast to a drawdown of 1.6 million barrels that analysts were predicting ahead of the release. By the end of the session, oil was up by $1.41 a barrel on the New York Mercantile Exchange at $83.18.

Today's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 06	07:30	Challenger Job Cuts	Dec	-72.9%	NA	-72.3%	--
Jan 06	08:15	ADP Employment Report	Dec	-84K	-90K	-145K	-169K
Jan 06	10:00	ISM Services	Dec	50.1	50.5	48.7
Jan 06	10:30	Crude Inventories	12/31	1.33M	NA	-1.54M
Jan 06	14:00	FOMC Minutes	12/16

 

It was a narrow trading range for the Dow Jones Industrial Average today with the large-cap index not varying much farther than 50 points in either direction. The Dow nudged up one point today, taking the index up to 10,573 points. After finding its way above the 10,500 point mark last week, it now appears that 10,600 is providing a little resistance for the large-cap index. Let's see if this is temporary or if it's going to be a tough level for the Dow. On the downside, the Dow appears to have found some nice support from its 20-day moving average (light blue line).

 

 

The S&P 500 also has bumped up against a new level at 1,140 points, but it hasn't really tested the new level just yet. The index rose 0.62 of a point in today's trading and finished the day at 1,137 points when the closing bell rang. Similar to the Dow, the S&P 500 is also finding some nice support from its rising 20-day moving average (light blue line). Let's watch to see if this continues to be the case if we see any selling later in the week.

 

 

The Nasdaq Composite changed roles today when it was the drag on the Market. Instead of leading the rest of the indices higher, it was the tech stocks that were holding everything else back. The Nasdaq finished the day in red territory when it lost 7 points and closed at 2,301 points. We're going to need this index to find some strength if we're going to keep the Market moving higher the rest of the week.  

   

 

After Friday's pop in the VIX (CBOE VOLATILITY INDEX), it has been nothing but red candles since. The index continued falling in today's trading when it gave up 0.19 of a point to finish the day at 19.16. As long as the VIX remains weak, it should mean good news for the bulls.

 

 

 

Things got a little interesting for us today with our tech spreads. While the drop in GOOG and PCLN weren't ideal, we're still sitting in decent shape across the board. Remember, as long as we can avoid multiple days in a row of heavy selling, we should be able to outlast any downturn. It appears the opposite of the "January Effect" was taking place in tech names. Instead of taking profits in the big gainers from last year, some investors waited to lock in profits until 2010. Whether this is the case or not, some of the bigger winners from last year in the tech sector took some big hits today.

 

Regardless of the reason, we still like how we're sitting in these spreads. Just like a sports team with a big lead, we just want to run out the clock and walk away with our nice profit again this month. For our other spreads, both the RUT & OEX couldn't be sitting much better at this point in time. We have huge cushions and not a lot of time remaining. For now, let's take a look at each spread in a little more detail.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35

CURRENT PROFIT POTENTIAL

$2,250.00

 

PCLN 200-190 BULL PUT SPREAD (15 Contracts entered on 12/29/09)

PCLN CLOSED AT $219.08 Today (19.08 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $202.50

It wasn't a very good day to have four letters in your ticker. Priceline certainly fit this description and felt the pain as traders dumped this stock like it was going out of style. Watching a $7.48 loss is never fun; keep in mind, however, that we're still up on the week due to the strong sessions we saw on Monday and Tuesday. The only thing we didn't care for was the fact that it dropped below its 20-day moving average (light blue line) on the daily chart. We would have liked it to hold above this level. But with almost 20 points of breathing room in this spread, let's not get too concerned unless we see a few more days like today.

 

 

 

RUT 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

RUT CLOSED AT $637.95 Today (57.95 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $585.00

The RUT wasn't able to hold in positive territory at the end of the session, but it gave up only 0.54 of a point on the day. Even with this small set-back, we're in much better shape right now than we were heading into this week. We have nearly 60 points of breathing room in our put spread and tons of great support on the chart. Let's just sit back and in enjoy the ride in this one for the time being.

 

 

 

OEX 490-480 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

OEX CLOSED AT $524.31 Today (34.21 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $492.50

The OEX also ran into a little trouble today when it gave back a fraction of a point. But like the other two spreads we looked at already, we're still up on the week. We have an extra ten points in this one from where we stood just three days ago and like what it's showing us on the chart. The index has broken through a decent resistance level at $520 and hasn't slowed down much. Let's see if it can continue marching up the chart the rest of the week.

 

 

GOOG 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

GOOG CLOSED AT $608.26 Today (28.26 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $582.50

Google definitely took it on the chin today when it shed 15.73 points and closed at $608.26. One day after the company announced it was going to be selling its own cell phone through its online store, the stock took a beating. Today's move took it back to its 20-day moving average (light blue line) on the chart with fairly high trading volume. While the increased volume was not a good sign, we still have a decent cushion in this spread and believe the selling will be short-lived. Let's keep a close eye on this moving average as well as its rising 50-day moving average (red line). We also haven't ruled out the idea of adding another layer to our put spread if we see a decent premium pop up over the next day or two. For now, let's watch it closely but not get overly concerned until we see another day or two like today.

 

 

As always, Trade Happy and Trade Smart

We finally got the selling we wanted on Thursday, helping us to fill the rest of our spreads. It has been a truly challenging two weeks for our new trade alerts. The Market has refused to fall, making it impossible for us to get filled in our new put spreads. However, that turned around on Thursday as the Market fell hard on the final trading day of 2009. This helped us get filled in all of our new trade alerts heading into the New Year.

 

The initial claims number released before Thursday's opening bell was very optimistic news for the Market. The actual number came in much better than the Street was expecting when the government said that new jobless claims fell by 22,000 last week. This brought the seasonally adjusted number down to 432,000 for the week ending December 26. Ahead of the report, consensus was calling for 460,000 new claims. The chart below shows how drastic the decline has been since topping out nine months ago at 674,000.

 

Graphic from Briefing.com

 

It was a fairly flat session for crude on Thursday as it settled up $0.05 at $79.36 a barrel on the New York Mercantile Exchange. However, it did lock in its largest percentage gain since 1999 with its 77.94% move last year. Gold also moved up on the session when it rose $3.70 an ounce to settle at $1,095.20. This pushed the shiny metal to its largest yearly gain since 2007 with its advance of 23.95% for 2009.

 

Thursday's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Dec 31	08:30	Initial Claims	12/26	432K	460K	454K	452K
Dec 31	08:30	Continuing Claims	12/19	4981K	5100K	5038K	5076K

 

It was sort of an ugly finish to the bullish year on Friday when the Dow Jones Industrial Average lost 120 points to finish the year at 10,428 points. While it was red on Friday, it was definitely all green for 2009 with the large-cap index climbing 18.82% on the year. This was its largest percentage gain since 2003. On the daily chart, the Dow pulled back to its 20-day moving average (light blue line) on the chart.

 

 

The S&P 500 also struggled on the final trading session of the year. It fell 11.32 points on Thursday to finish the year at 1,115. Despite its ugly finish, the index still locked in a 23.45% gain for 2009 and its best yearly performance in over six years. On the daily chart, the S&P 500 is sitting a little higher than the Dow, above its 20-day moving average (light blue line), but certainly did turn over on Thursday. Let's see if it's able to hold above this moving average on Monday and Tuesday.

 

 

The Nasdaq Composite slid 22 points on Thursday, but still had an outstanding year. It was definitely the year to be in tech stocks with the Nasdaq climbing over 43% in 2009. Its closing price of 2,269 on Thursday meant that last year was the Nasdaq's best one year performance since the same index gained 50% in 2003.

   

 

The selling on the final trading day of the year was good news for the VIX (CBOE VOLATILITY INDEX). The "fear index" rose 1.72 points to finish the year at 21.68. This was the most significant move we've seen out of the index in the past two weeks. It also took the VIX back above its 20-day moving average (light blue line) on the chart. The big test for the index will be if it's able to make it up to its 50-day moving average (red line).

 

 

It took a full week, but we finally got filled in all of our new trades. We've been looking for a round of selling this large for the past two weeks but had to wait until the final session before the New Year before we actually saw it show up. Traditionally, we see some selling towards the end of the year as investors dump underperforming stocks for tax reasons. Perhaps it's because of the strong gains during the past year that we didn't see this really play out this time around. In the past, we also usually get a nice bump during the first couple of trading days in the New Year as investors then put that money back to work by purchasing securities. We'll have to see if this plays out on Monday or Tuesday.

 

If this does happen, this should be perfect for our new put spreads. Now that we're filled, we would love nothing more than to see a nice move to the upside, extending our cushions. But even if we don't get this, we still like how we're sitting in all of our spreads heading into this week. Let's take a closer look at all of the positions.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35

CURRENT PROFIT POTENTIAL

$2,250.00

 

PCLN 200-190 BULL PUT SPREAD (15 Contracts entered on 12/29/09)

PCLN CLOSED AT $218.41 Today (18.41 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $202.50

Priceline had a tough trading day on Thursday when it fell below its 20-day moving average (light blue line). The stock appeared to find some nice support from this line on Wednesday, but the selling on Thursday proved too much of a problem for PCLN. The stock finished the session near its low with a $5.20 loss. This took it down to $218.41 and ate into our huge cushion in this position. However, we're still sitting in very good shape heading into this week. Let's see if the stock is able to find some support and reverse last week's negative trend in the next few sessions.  

 

 

 

RUT 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

RUT CLOSED AT $625.39 Today (45.39 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $585.00

The small-cap index finally ran out of steam on Thursday. After bumping up against resistance at its high for the year, the RUT rolled over. It finished the session down $8.02 at $625.39. This loss put the small-cap index into negative territory for the week at a minus 1.4% for the four sessions. But even with this loss, we like how we're sitting in our put spread. It might have been difficult getting into the spread, but we're sitting in really good shape heading into this week with our 45 points of breathing room in this one.

 

 

 

OEX 490-480 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

OEX CLOSED AT $514.09 Today (24.09 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $492.50

The $520 mark was just too difficult for the OEX last week. After failing to break through this resistance barrier, the index turned south. After Thursday's loss of $4.82, the index settled at 514.09 points. The OEX finished the week just above its 20-day moving average (light blue line) at Thursday's close. This week, we'll be watching to see if it's able to stay above this mark. After this line, the next stop is probably its rising 50-day moving average (red line).

 

 

 

GOOG 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

GOOG CLOSED AT $619.98 Today (39.98 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $582.50

Google certainly ran into some selling on Thursday, but was still able to hold up fairly well considering how the rest of the Market fared. The stock shed only $2.75 on Thursday to finish the week at $619.98. On the chart, it appears to be running into some resistance in the area of $625. Regardless, we appear to be sitting just fine in our put spread with the stock nearly 40 points above our "short" strike price. We should be able to just sit back and relax in this one for the time being.

 

 

As always, Trade Happy and Trade Smart