Online travel stocks took a beating after another analyst downgrade. This time it was a Citi Investment Research analyst that predicted problems in the leisure travel business. He used words such as "likely to weaken" as his reasoning for lowering his price targets on nearly the whole sector. For PCLN, he lowered his price target for the company's shares to $142 from a previous forecast of $161. He defended this adjustment by saying that Europe accounts for a substantial amount of Priceline's bookings and have been its biggest growth area. He said that there are signs of weakness in leisure travel from the U.K. to Spain.

Not only did his comments drop the sector hard, they caused us a lot of pain in our PCLN spread. The stock took a $9.67 beating in today's session and closed just above our "short" strike price at $115.46.

Although this caused us a lot of heat in our put spread, we're going to attempt to wait out this sharp downturn. Whenever a stock gets an overreaction like today, it's likely to see a nice bounce back when investors realize the price drop was overdone. Because we have so much time left in this option cycle, we're not in a big hurry to make an adjustment in this spread. There's plenty of time value left in these options and the uptick in volatility has also inflated the option value. However, if we get another major move downward, then we'll need to make a defensive move in our spread.

For tomorrow, the plan is to sit tight and see what the internals look like in the stock. If something causes us to change our plan, we'll send out an intraday trading alert. Keep a close eye on your email and let's try to use patience in this one for the time being. Currently, the rest of our spreads are holding up fine.

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08)

$50.00 per contract profit potential

As always, Trade Happy and Trade Smart

The Bear has awakened. Friday's unrelenting selling on the Dow helped the index tumble into Bear Market terrain. The large-cap index dipped below the 20-percent threshold on Friday (from last fall's peak), which signals the start of a Bear Market. Its drop of 460 points in the last two sessions has also caused the Dow to reach its lowest point since September of 2006.

Although the Dow was the only major index to hit the 20-percent decline off of October's high, the other two are close behind. The NASDAQ is off 19-percent while the S&P 500 is down a little over 18-percent.

With skyrocketing inflation and a Fed that is stuck between a rock and a hard place, it leaves little room for optimism on the Street. Even though the GDP showed a surprising increase of 1-percent for the first quarter, traders were not impressed. Instead, they pointed to the government stimulus checks for helping to inflate spending, which will drop off in the second half of the year. Not to mention the barrage of downbeat news that seems to always drown out anything positive on a daily basis.

Oil continued to stay on the front burner Friday when it spiked to another new all-time close of $140.21 a barrel. It also hit another intraday trading high of $142.99 before retracing by the end of the session. Of course it didn't help matters when the dollar fell to a three-week low against the euro during the session. The two of these things combined were more than enough to cause a spike in the price of gold. Investors scrambled to find safety in gold on Friday when it jumped $16.20 an ounce and closed at $929.30 on the New York Mercantile Exchange.

Meanwhile, the never-ending credit crisis continued to paralyze the Market. On Friday, Moody's Investors Service said it might cut its long-term credit rating on Morgan Stanley over risk management inconsistencies. Then there were rumblings that Merrill Lynch might have to write-off $6 billion due to its mortgage-related debt. This comes just a day after a Goldman Sachs analyst forecasted a $4.2 billion write-down at Merrill and almost a $9 billion write-down at Citigroup. It seems like each week we pullback another layer of toxic subprime news.

All of the pessimism easily overtook the positive economic data on Friday. The Commerce Department said spending jumped 0.8-percent in May, which was larger than the 0.7-percent that the Street was expecting. The data also showed a big spike in personal incomes. The 1.9-percent gain was the biggest jump in over 30 years, and was unexpected.

However, it wasn't all positive data on the economic front. The University of Michigan's June index of consumer sentiment once again dropped. Its latest reading of 56.4 continued its string of falling consumer confidence. But based on what the consumer is reading in the paper and watching television, it's not surprising that there's not much optimism.

Friday's Economic Data

Friday's 106-point drop in the Dow Jones Industrial Average puts the index down over 10-percent for the month of June. If the index does not respond on Monday, it will be the worst month in the index since 1930. The last two sessions of the week took the index below its March and January lows. On Friday, the Dow settled at 11,346. When the index is in a free-fall, it slices through support lines like a hot knife slicing through warm butter.

The S&P 500 also turned in an ugly performance at the end of the week. Friday's 4-point drop was less painful, but its chart is ugly all the same. The index is now down nearly 13-percent for the year and off over 18-percent from last October's record high. On Friday, the index took a small bounce off its January low. Based on its recent downturn, it's hard to have any confidence in this support level on the chart.

The NASDAQ Composite has been stronger on the chart, but the losses are equally as troubling as the other indexes. On Friday, it fell 5 points and closed at 2,315. It has lost 12.7-percent so far in 2008 and is down by 19-percent since its high last year. On Friday, it closed well off its low of the session. But after last week's move, it's probably just taking a break on its way lower.

When we were taking advantage of increased premiums in put spreads last week, we were playing the odds that the move lower would be long and drawn out. We also believed that it would be an orderly decline mixed in with a move sideways or at the least a decent bounce off of the January and March lows. Unfortunately, this is not what we've encountered thus far.

Despite this, we came through last week in decent shape. With volatility spiking back into higher levels, we feel the need to take one week at a time. Heading into this week, we are left with decent cushions, which normally would cause us very little concern. But after last week's deterioration in the Market, we feel like we need to be on high-alert at all times.

As in the past, we'll be closely monitoring all the Market internals heading into this week. But don't forget that we make our money by having patience and not jumping the gun even though we get a couple of big down days. Instead, we're going to sit tight and see what unfolds this week. The good thing is that we have only four positions going right now, so we have some funds freed up for adjustments or any other good opportunities that this pullback might offer us. For now, let's take a look at our open positions...........

 CURRENT JULY SPREADS

RUT 640-630 JULY BULL PUT SPREAD (15 contracts entered on 06/23/08)

$45.00 per contract profit potential

Small-Caps took it on the chin Thursday, but stopped the bleeding on Friday. The RUT only lost $0.28 on the final session of the week and closed just under $700. The 0.04-percent loss put the index at $698.14 at the closing bell. Although we don't like to give up any of our breathing room in this spread, we still are sitting with nearly 60 points of it heading into this week. Out of all our spreads, we feel the most secure in this one.

MNX 177.50-172.50 JULY BULL PUT SPREAD (15 contracts entered on 06/23/08)

$50.00 per contract profit potential

The MNX was also able to stop the pain on Friday and actually finished the session in the green. The index gained a mere $0.03 on the day and finished the week at $185.57. It would help our position tremendously if the MNX bounced off Friday's low. We are currently sitting with an 8-point cushion in this spread.

X 165-160 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08)

$50.00 per contract profit potential

Last Thursday's selling actually worked to our benefit in this spread. It caused X to drop enough for us to get filled. Then on Friday, U.S. Steel bounced back with a $1.60 gain on the session. The 0.86-percent advance put the stock at $186.93 at the closing bell. Although rising iron ore costs have increased material costs for X, the higher demand in steel should more than make up for it. Not to mention that U.S. Steel controls most of its own supply. With three weeks to go in this spread, we're in good shape with over 20 points separating our "short" strike price and the stock.

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08)

$50.00 per contract profit potential

It feels like a repeat of last month. PCLN seemed to be moving along nicely until we entered the spread. Then, the stock dropped off significantly as soon as we're filled. Let's just hope this month has the same ending as last month. On Friday, PLCN lost $1.87 on the session. However, the stock made a big bounce off its low of the session. This was a very encouraging sign. It was also nice to see that PLCN had a very big inflow of money on Friday. As a matter of fact, it topped The Wall Street Journal's list of "Buying on Weakness" Friday afternoon. Heading into this week, we have just over a 10-point cushion with three weeks left in the cycle.

As always, Trade Happy and Trade Smart

Fed holds steady but Market whips around like a convulsion. With the price of crude taking a tumble, the Fed's decision to keep the Federal Funds Rate unchanged sparked a triple digit rally in the Dow Wednesday afternoon. But choppy trading in the last hour of trading took a bite out of the gains. Although the indices finished the day in the green, they were well off their highs by the time the closing bell rang.

The FOMC statement cited several troubling signs in the economy. It mentioned continued problems in the credit market, contracting housing market, and rising energy costs. The Fed believes that these items will hinder growth in upcoming quarters and keep inflation at elevated levels. The end result was a decision to keep the rate steady at 2-percent, but make the case for increasing it later this year.

Although today's decision by the Federal Reserve ended a string of nine-consecutive cuts, the Market surged on the news. But the buying soon subsided as traders decided to lock in some profits. After all, selling the rallies has worked out pretty well over the last couple months.

Oil took a spill after the Energy Information Administration reported that supplies rose slightly last week. The weekly inventory report was better than the 1.7 million barrel decline that analysts had predicted. On the session, crude fell $2.45 and closed at $134.55 a barrel on the New York Mercantile Exchange.

The weakness in today's session was also helped when the EIA forecasted a reduction in years to come. According to the government report, production will increase in Azerbaijan, Brazil, Canada, Kazakhstan and the United States, which will drop oil prices to $70 a barrel by 2015.

Wednesday's Economic Data

Inflation seemed to be the word of the day. On CNBC's Power Lunch, Warren Buffett claimed that inflation in the U.S. is exploding. While certainly not encouraging words, they shouldn't have been surprising to anyone. More like stating the obvious.

Speaking of stating the obvious, more of it came from the Commerce Department this morning when it reported another plunge in new home sales and prices in May. The government report showed a seasonally adjusted rate of 512,000 units sold last month, which was down 2.5-percent. It also showed a drop in the median home price of 5.7-percent, making the price of a new home $231,000.

In other economic news, durable goods came in flat for the month of May. This was in line with expectations, but better than the previous month. The data showed an uptick in demand for aircraft and computers in May.

The Dow Jones Industrial Average's wild ride ended about the same place it began. The large-cap index surged over 100 points after the Fed announcement, but by the end of the session it was only up a mere 4 points. The 0.04-percent gain puts the index at 11,811. The question on the chart is whether yesterday's low was a bounce off of the March lows or are we headed down to the January lows? The final two days of the week should tell us the answer. So far on the year, the index is down 11-percent. Not exactly a great first half of 2008.

The S&P 500 was able to hold on to more of its gains today. The index finished the session up 7 points at 1,321. It also remains much stronger on the chart, well above the March and January lows. Similar to the Dow, we'll have to wait to see if yesterday's low was a reversal point or just a blip on the radar.

The NASDAQ Composite outperformed the other two indexes today when it surged 32 points to the upside. The 1.39-percent climb takes the index up to 2,401 on the chart. Just like the other two indices, where the tech-laden index goes from here is extremely meaningful.

While the NASDAQ held up very well today, it's likely to face some bearish pressure on tomorrow's open. After today's closing bell, Research In Motion Ltd. shares dropped sharply when the BlackBerry-maker reported disappointing earnings. The company's increase in quarterly profit and revenue fell just short of the Street's expectations. Although RIMM's sales doubled, an earnings miss is a big no-no on Wall Street. Shares fell over 8-percent in after-hours trading.

On Monday, we were able to get filled in both of our new spreads (RUT & MNX). With only two positions in our accounts, we're now ready to add a few more. On tomorrow's open, we are moving forward with two additional spreads.

We are opening up a new put spread on an old favorite United States Steel Corp. (X). The company has been on fire since the last time we were in this stock. We've always been bullish due to the fundamentals on this stock and we happen to agree with a recent note from Goldman Sachs on Tuesday, who added the stock to its buy list. Goldman also raised its second half 2008 estimates to $17.30 EPS. While the fundamentals are extremely strong, we also like the move the stock has made on the chart. It recently bounced off its 50-day moving average (red line) and as renewed its upward march. This upward momentum should help us make a nice profit in this spread.

We are moving back into Priceline.com Inc. (PCLN) for July. We had a little hiccup last month in this spread when the stock and others in its sector received a downgrade, but then PCLN recovered nicely. Since then, it continued its slow, methodical march up the chart. It has now moved back above its 50-day moving average (red line) and built several support levels along the way. Once again, we are going it at conservative strike prices (same strikes as last month) in order to give ourselves plenty of cushion in this spread.

NEW TRADE ALERT (2)

Please note: These are Day Orders. If we do not get filled, we'll make adjustments in the future.

United States Steel Corp. (X)

OPENING 165-160 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 165 strike price

Buy 15 July Puts at 160 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

Priceline.com Inc. (PCLN)

OPENING 115-110 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 115 strike price

Buy 15 July Puts at 110 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

X DAILY CHART

PCLN DAILY CHART

 CURRENT JULY SPREADS

RUT 640-630 JULY BULL PUT SPREAD (15 contracts entered on 06/23/08)

$45.00 per contract profit potential

Monday's drop in the RUT helped us to get filled in our new spread. Now that we're in, we'd like it to stop. This is what it did in today's trading when the index shot up $8.38 and finished the session at $716.30. The 1.18-percent advance got back most of Tuesday's losses and leaves our spread in decent shape. As of today, we have a comfortable 76-point cushion in this spread.

MNX 177.50-172.50 JULY BULL PUT SPREAD (15 contracts entered on 06/23/08)

$50.00 per contract profit potential

Just like the NASDAQ, the MNX turned in a good performance today. It advanced $3.02 and settled at $193.39. On the chart, the index struggled to break through an old support level (now resistance) near $195. We'll be watching this level in the future to see if it can gain enough momentum to break back above it. On the downside, yesterday's low was at an old support level on the chart. If there's any more selling pressure, we'll be watching this area closely to see if the tech-heavy index can hold above it. After today's move, the index is trading 15 points above our put spread.

As always, Trade Happy and Trade Smart

Stocks tank, but we made it four profitable months in a row. It was hard to find a reason to be a buyer on Friday with the indices falling hard, but this had no affect on us as we extended our stretch of profitable months.

It feels like we could just keep re-printing the excuses for the deteriorating Market, week after week, month after month. Friday's gremlins were once again the fault of sky-high oil and continued credit concerns. The combination of these two was more than enough to wipe out any sense of optimism and send the bulls into a deep hibernation.

After falling hard on Thursday, oil made a quick recovery early Friday when news out of Israel heightened the fear of traders. A news release stated that the country's military carried out a practice attack on Iran's nuclear facilities. This sent crude up $2.69 a barrel as traders feared disruptions in the oil market. The 2-percent jump in oil took the price up to $134.62 at the close of trading on the New York Mercantile Exchange.

With oil bouncing back, the last thing the Market needed was additional problems in financial stocks. But that's what happened when Moody's lowered its credit ratings on the two largest bond insurers. Although both MBIA and AMBAC had already faced downgrades from other credit rating agencies, none were as important as the one they received late Thursday night. The decision by Moody's will have a major impact on the two companies.

MBIA alone said that it will have to pay out $2.9 billion to satisfy certain contracts and add $4.5 billion of collateral. Besides these two downgrades, Moody's also cut its ratings on smaller insurers, causing similar distress on these companies. As expected, this news caused big problems in the financial sector. According to The Wall Street Journal, financial stocks broadly are trading at their lowest levels in five years.

With the credit crunch appearing to have no end in sight, the only variable appears to be oil. This weekend, Saudi Arabia hosted an oil summit with oil-producing nations, consuming nations, and energy companies. According to early reports out of the meeting, the Saudis will increase their production by 200,000 a barrels a day in July. Despite this bump in production, the U.S. Energy Secretary called on the Kingdom to increase production even more, citing that it has not kept up with the increasing demand over the last three years. The Secretary claimed that global oil production has remained constant at 85 million barrels a day, even though world consumption has risen 1.8-percent a year since 2003. Most of that increase has come from China and India. 

This week's economic schedule is pretty action-packed. The most significant announcements will be the FOMC Policy Statement on Wednesday, GDP on Thursday, and PCE Inflation on Friday. The problem with Wednesday's FOMC decision on rates is that the Fed is really in a box. With inflation remaining high, the committee would like to appear as a hawk with tough language or even a rate hike in order to combat rising prices. But with the economy stalling, a rate hike would almost guarantee a recession because it would increase variable rates and cause another round of mortgage foreclosures. To say the least, it will be another exciting week. The good news is that we're pretty used to navigating through choppy waters. After a while, it doesn't even seem that exciting.

Friday's Economic Data

After dropping below 12,000 early in the session on Friday, the Dow Jones Industrial Average continued to deteriorate the rest of the day. It finished the day down 220 points at 11,842. The 1.8-percent slide takes the index within striking distance of the March lows. It also is closing in on January's low on the chart. It feels like the March low is a given at this point. The only question is will the index will bounce off this support level or slice right through it? So far this year, the Dow is down 11-percent and appears to be headed lower in the near term.

The S&P 500 also had little trouble breaking through some very strong support levels on the chart on Friday. The index shed nearly 25 points on the session and closed the week at 1,317. By losing almost 2-percent on Friday, the index is now down 10-percent for 2008. However, it is holding up better on the chart than the Dow. It still has a ways to go before it reaches the January or March lows.

The NASDAQ Composite spent last week flirting with its 50-day moving average (red line) on the chart. But Friday's 2.3-percent drubbing took the tech-laden index well below this mark. It tumbled 55 points on the session and finished the week at 2,406. Although the Nasdaq is down over 9-percent on the year, it is holding up better than the other two indexes on the chart. The good news is that it finished off its lows on Friday. The session's low was also near the previous week's low on the chart and is a decent support level. This is the area that we'll be watching closely if the index remains weak.

This cycle wasn't as simple as the previous month, but once we got Apple figured out things got a lot easier. After we rode out the pain in Apple and it reversed in our direction, it was pretty much smooth sailing. Even as the indices were crumbling around us, we were able to leave it on autopilot into the June expiration.

Although our profit totals might not have been as impressive as we've made in the past, our conservative approach this month helped us profit when many other traders didn't. Even when the Market is in turmoil, we don't stop trading. Instead, we place our spreads a little farther out of the money and at smart strike prices. Although we're giving up some premium, it gives us plenty of cushion in our spreads, which increases the odds in our favor. With Friday marking expiration, let's go ahead and add up the totals from June.

CLOSED/EXPIRED JUNE SPREADS

POT 175-170 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$50.00 per contract profit

MNX 187.50-182.50 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$40.00 per contract profit

AAPL 165-160 JUNE BULL PUT SPREAD (15 contracts entered on 05/28/08)

$50.00 per contract profit

RUT 650-640 JUNE BULL PUT SPREAD (15 contracts entered on 05/27/08)

$50.00 per contract profit

Now that we have our accounts freed up, it's time to get some new spreads going for July. Although we have a bearish to neutral sentiment at the moment, we're going to start off with a few put spreads on tomorrow's open. Our mindset is that we might come through with several iron condors this month. But over the last week's downturn, a couple indexes held up very well. Both the RUT and the MNX encountered some selling, but nothing like the overall Market. The other thing we like about entering put spreads right now is that the selling has inflated the value of puts, thus allowing us to go even farther out of the money on the put side and pick up a decent credit.

As a matter of fact, we're able to place spreads on both the RUT and MNX at even lower strikes then last month. In the case of the RUT, we're going to attempt to get a credit close to last month. But on the MNX, we're going after an even better credit. As usual, we're gong to use patience on the way in to the spreads. Let's sit back and not get concerned if we don't get filled right away on the open. Instead, we'll let them work as Day Orders and see what happens.

NEW TRADE ALERT (2)

Please note: These are Day Orders. If we do not get filled, we'll make adjustments in the future.

Russell 2000 Index (RUT)

OPENING 640-630 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 640 strike price

Buy 15 July Puts at 630 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

MINI-NASDAQ 100 INDEX (MNX)

OPENING 177.50-172.50 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 177.50 strike price

Buy 15 July Puts at 172.50 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

RUT DAILY CHART

MNX DAILY CHART

As always, Trade Happy and Trade Smart

Dow threatens 12,000 as effect of high energy starts to take its toll on Wall Street. The Dow dipped below the psychological barrier after FedEx posts dismal earnings while the financial sector continued to crumble. Although the index closed above this mark, the anxiety caused the Dow to hit its lowest level since the March lows.  

FedEx Corp. helped drag the transports lower this morning when it posted a quarterly loss due to a write-down from its Kinko's acquisition. This came after the company had already lowered its quarterly estimate twice so far this year. But perhaps the most troubling part of the announcement was when the company said that even 2009 (fiscal year) is expected to be a very difficult operating environment. FedEx also said that it will close several operations, increase its fleet of hybrid vehicles, and change its plane rotation in an attempt to cut costs and combat higher fuel prices.

Financial stocks stayed in the headlines Wednesday morning when Fifth Third Bancorp announced plans to cut its dividend and raise $2 billion in capital. It will attempt to raise $1 billion through a preferred stock offering and another billion from the sale of businesses.

In its quarterly announcement, Morgan Stanley reported a 61-percent drop in earnings from a year earlier. However, it was able to beat its second quarter estimates due to trading and asset sales. Meanwhile, the broker MF Global Ltd. reported that it will attempt to raise $300 through convertible securities so that it can pay down a loan. The company also said that tight credit spreads will hinder its first quarter earnings.

Oil was able to rebound in today's session and finish up $2.67 at $136.68. This broke a losing streak of three straight sessions when fear of supply cutbacks in Nigeria spooked traders. Evidently, negotiations between Chevron Corp. and its union have broken down.

However, the big focus for oil traders is coming up on Sunday, when Saudi Arabia is hosting industry officials to discuss the current situation in oil prices. Energy watchers are expecting the Saudis to increase output following the conference.

Today was also the weekly Energy Information Administration's report on U.S. inventories. According to the report, crude stockpiles declined by 1.2 million barrels last week for the fifth straight week.

To combat the high energy costs, President Bush outlined a plan to increase domestic oil production. Although this is nothing new, the President is counting on the high prices at the pump to drive the Democratic-controlled Congress into acting. However, members of the U.S. Legislature were quick to dispel the need for more production. Without action by Congress to allow domestic production, the long-term outlook on oil production is likely to keep prices high at the pump.

Friday's Economic Data

The Dow Jones Industrial Average was able to close off its lows of the session, but still lost 131 points on the day. This takes the index down to its lowest close since mid-March and puts the index down over 9% on the year. If we're not able to hold above 12,000, we're likely headed for the March lows near 11,000. This is why we'll be monitoring the 12,000 level very closely the rest of the week.

The S&P 500 tumbled 13 points on Wednesday and finished the session at 1,337. The index closed just above last week's low. If it takes us past this mark on the downside, it's likely to continue moving south. So far this year, the S&P 500 is off nearly 9% for the first six months.

After rebounding nicely last week, the NASDAQ Composite has reversed that trend in the last two days. In today's action, it lost 28 points and fell below its 50-day moving average (red line). Although it closed just above a support level on the chart, any additional selling will likely take it back to last week's low on the chart.

And then there were two. With only a couple sessions left in the June options cycle, we should be able to coast to the finish line in our spreads. As a matter of fact, our two index spreads only have one full trading day left since they expire on Friday's opening print. Although we don't like to see the red across the board, we should be able to make it to the weekend with our options expiring worthless. Of course, with volatility increasing, we'll need to keep a close eye on everything just to make sure nothing dramatic happens. But for now, we're feeling pretty good heading down the home stretch.

CURRENT JUNE SPREADS

POT 175-170 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$50.00 per contract profit potential

Potash finally took a breather today when it closed down $1.76 at $237.74. But even with the loss, the stock still made a new intraday all time high. This month's chart looks like a 90-degree angle. The stock and its sector continue to outperform the Market with ease. With POT trading over 60 points above our put spread, we have nothing to worry about in this one. Too bad they couldn't all be this easy.

MNX 187.50-182.50 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$40.00 per contract profit potential

The MNX has pulled back on the chart over the last two sessions, taking the index down to its 50-day moving average (red line). In today's trading, it shed $2.17 and closed at $195.11, which is a decent support level on the chart. If this level doesn't hold, the MNX is likely headed toward last week's low. However, with only one full trading day left in this spread, we should be able to make it to the finish line with our spread intact.

AAPL 165-160 JUNE BULL PUT SPREAD (15 contracts entered on 05/28/08)

$50.00 per contract profit potential

After Apple's tumble last week, analysts have been coming out of the woodwork with bullish notes on the company. Many of them have bumped up their price targets for the stock due to the 3G iPhone. This helped the stock turn in two very good performances on Monday and Tuesday. However, it wasn't able to overcome the negativity on the Street today. It fell $2.68 and finished the session at $178.75. The good news is that the good start this week has left us with over a 10-point cushion in this spread with only two sessions left. This should help us turn a profit in this spread on Friday's close.

RUT 650-640 JUNE BULL PUT SPREAD (15 contracts entered on 05/27/08)

$50.00 per contract profit potential

The RUT took a fall in today's session, but finished well off its low. It lost $5.86 on Wednesday and finished the day at $730.71. In today's trading, it reversed at its 50-day moving average (red line) and then was able to pare most of its losses. With 80 points of breathing room and only one full trading day left in this spread, we shouldn't have anything to worry about.

As always, Trade Happy and Trade Smart

Oil eased and inflation provided little resistance for the bulls on Friday. The price of crude pulled back but remains at elevated levels. Meanwhile, the consumer price index showed an expected spike in energy-related items, but other areas remained in check. The combination of these two data points helped traders to take a glass half-full approach on Friday, ending the downward momentum in the indices.....at least temporarily.

We had to wait until Friday to get the latest figures on inflation from the Labor Department. According to the government, consumer prices jumped last month due to rising energy prices. This should have been very little surprise to anyone who's filled up the car with gas this year or paid to heat or cool a house. However, traders focused on the bright spots where consumers have not taken on higher costs from retailers or for health care. While this was positive data on Friday, the concern remains that eventually these higher costs will start to spread across the board if energy prices remain elevated.

Friday's release of the consumer-price index was pretty close to what analysts had been expecting. For May, it increased 0.6% according to the Labor Department. However, the more-important core (which excludes food and energy prices) came in as expected at 0.2%. The chart below shows how the core inflation has remained in check, at least on an historical perspective. The big test will be the producer price index that comes out on Tuesday. If the producers are fighting higher costs, it's probably a matter of time before we see this start to trickle over to the consumer price index. This is what the Street does not want to see.

Also on the day, the Reuters/University of Michigan consumer sentiment index hit its lowest reading in nearly 30 years. It dropped from 59.8 in May to a fresh 28-year low in June to 56.7. This figure also wasn't too surprising when you consider the pressures that the consumer has been facing with deteriorating housing prices, the falling value of the dollar, and rising food and energy costs.

It's pretty obvious that the current price of oil is ridiculous when Saudi Arabia says that $139 a barrel is unacceptable. The world's largest exporter then said that they would consider another increase in daily output. This news helped to bring the price of crude down a bit. On Friday, it shed $1.88 and settled at $134.86 on the New York Mercantile Exchange. We'll have to wait to see if it continues to drop this week. After weeks of our own belief that crude would pullback, we're now at the point that we'll believe it when we see it. Until then, we're not ready to bet in either direction.

Friday's Economic Data

The Dow Jones Industrial Average put together two positive sessions to end the week on a positive note. It moved up 165 points on Friday and closed at 12,307. The 1.4-percent gain on the final day of the week helped the index to turn positive by 0.8-percent. The question heading into this week will be whether the Dow can hold onto these gains and hopefully build upon them. If not, we're likely to test last week's low.

The S&P 500 surged 20 points on Friday, finishing the week at 1,360. The 1.5-percent advance helped the index reverse the recent downtrend. The index was helped by the late-rally financial stocks that have been taking a beating so far this year.

The NASDAQ Composite bounced back above its 50-day moving average (red line) on Friday when it gained 50 points. The 2.1-percent rise took the tech-heavy index up to 2,454. Despite the rally at the end of the week, the Nasdaq lost 0.8-percent for the week. Similar to the other two indexes, the NASDAQ's action appears to have set it up for a temporary bottom on the chart. We'll have to wait to see if it plays out this week.

We got the much-needed bounce on Friday, which helped take some of the pressure off a few of our spreads. After a week that was filled mostly with selling, a couple of our spreads were starting to give us some pain (APPL & MNX). Friday's bounce has eased the heat on these spreads, but we'll have to wait for Monday to see if this was a temporary rebound. We'll continue to monitor all of the positions closely this week. Like always, our goal is to make it to the finish line with our spreads intact. However, if we do get more selling, don't be shocked to see us close a spread down early. For now, let's sit tight and see what unfolds on Monday.

CURRENT JUNE SPREADS

POT 175-170 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$50.00 per contract profit potential

Once again the agricultural chemical companies were able to defy the Market last week. Although it wasn't green every session last week, Potash was quite resilient over the last five trading days. On Friday, its bullish strength continued when it gained $3.55 and finished the day at $226.13. With only five days left in this spread, we're sitting in great shape with over a 50-point cushion.

MNX 187.50-182.50 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$40.00 per contract profit potential

After struggling for the first three sessions last week, it finished with two consecutive gains. Thursday's advance took the index back above its 50-day moving average (red line) while Friday's gains took it above its 200-day moving average (black line). These two sessions gave us back some breathing room in this spread. After Friday's $4.17 jump, the index is now $9.10 above our put spread. 

AAPL 165-160 JUNE BULL PUT SPREAD (15 contracts entered on 05/28/08)

$50.00 per contract profit potential

To quote an article in Barron's this weekend "IT'S FINALLY HERE. AFTER MONTHS OF SPECULATION, Apple last week unveiled the second-generation iPhone -- and it's a marvel. But there are still some caveats that anyone considering buying Apple shares must ponder, including the biggest one: the effect of the rumors about CEO Steve Jobs' health."

The second half of last week was filled with rampant rumors about Steve Jobs having some type of illness. This above anything else seemed to be the catalyst behind Apple's stock taking a nosedive. The extreme selling on Friday morning had us on the edge of our seats, but we knew that this recent drop was overdone. This is why we held firm in our spread, along with the considerations that the Market was making a decent bounce.

Although Apple lost $0.89 on Friday's session, on the chart it appears to have given us a bullish candle. We'll have to wait until next week to see if this is a near-term bottom. Keep in mind that we only need a little relief in the selling to make it to expiration with our spread intact. With Apple sitting at $172.37, we now have a safety net of $7.37 heading into the final five trading days. For now, the plan is to sit tight and see what transpires on Monday. If conditions worsen, keep an eye on your email for any possible adjustments. If not, let's try to ride this one out a little while longer.

RUT 650-640 JUNE BULL PUT SPREAD (15 contracts entered on 05/27/08)

$50.00 per contract profit potential

The RUT bounced back with some conviction on Friday. It shot up $13.77 and moved back above its 50-day moving average (red line). Not only did it break the recent string of down days, but it also gave us back an 83-point cushion. With only four full trading days left in this position, this one should be money in the bank for June.

As always, Trade Happy and Trade Smart

Another spike in oil and tough inflation talk leads to big tumble on Wall Street. With another decline in U.S. inventories, traders bid up the price of crude on Wednesday and stoked concerns over inflation.

Once again, the weekly inventory report showed a surprising drawdown in U.S. supplies. Last week's larger-than-expected drop of 4.6 million barrels has caused the largest one-month drop in supplies in over 20 years. Moreover, the decrease in U.S. consumption is having no effect on the price of crude. In today's session, oil moved up another $5.07 and settled at $136.38 a barrel on the New York Mercantile Exchange.

In economic news, the Fed's Beige Book found that economic activity continued to be generally weak in April and May. The data continued to show that consumers were hampered by higher energy and food prices.

The Federal Reserve has been outspoken this week in regard to its fight on inflation. It seems like every policymaker has been publicly speaking out against the threat to the economy. Today's most notable speech came from Vice-Chairman Donald Kohn. He reiterated that "Repeated increases in energy prices and their effect on overall inflation have contributed to a rise in the year-ahead-inflation expectation of households." He also talked about the Fed's expectations when he said "An appropriate monetary policy following a jump in the price of oil will allow, on a temporary basis, both some increase in unemployment and some increase in price inflation."

All of the tough talk from the Fed has left some on the Street wondering if the committee will raise rates at its next meeting in two weeks. The Chairman himself recently hinted an increase in the fed funds would be coming soon. Although futures are showing a likely increase later this year, odds show that the FOMC will not do it at its next meeting.

The weak dollar continued its downward spiral on Wednesday, which was detrimental to the price of oil. Once again, it fell against the euro and yen. Meanwhile, bond prices rose with the yield on the benchmark 10-year Treasury note, which moves opposite its price, falling to 4.07-percent. The price of gold rose on the session to $882.90.

Friday's Economic Data

The Dow Jones Industrial Average dropped 205 points on Wednesday's session. The 1.7-percent fall takes the index down to 12,083 on the close. Although the index closed just above another key support level on the chart, it's hard to be too convinced that the bloodletting will stop at this level. Whenever the session closes at its lows, odds are that there's more selling left. After today's tumble, the Dow is off nearly 9% for the year.

The S&P 500 fared no better on the session. It lost 22 points and easily sliced through support levels on the chart on its way down to 1,335.

The NASDAQ Composite led the way south today when it declined 2.2-percent or 54 points on Wednesday. Support levels did little to slow it down during the session. It finished the day at 2,394. As we mentioned earlier, we certainly wouldn't be surprised to see additional selling after a day like this.

It was certainly another ugly leg down today on the charts. With skyrocketing energy costs and no end in sight, there was little reason to be on the "long" side today. As far as our spreads are concerned, we're sitting in decent shape considering the avalanche of selling that we've encountered. Our main concern is the MNX spread over the next few days. Although we still have a decent cushion in this spread, we want to keep it on a close leash. We'll continue to monitor the indicators closely over the next few days and will send out an alert if we get close to taking any defensive action. For now, let's sit tight and see if we can't get a bounce or at least a slowdown in the selling.

CURRENT JUNE SPREADS

POT 175-170 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$50.00 per contract profit potential

Potash started this week the same way it finished last week. In the last three sessions, it has made two new all-time highs. Today's rally in the face of such a negative session on the Street was fueled by the company's CEO who stated that the company is poised for significant growth over the next five years. He also said that the company is nowhere near peak pricing. These statements ignited a strong buying frenzy on the open. The stock was also pushed higher from an upgrade at BMO Capital Markets, who gave the stock a price target of $310.

Our spread is sitting in great shape after today's $2.54 gain, which took the stock up to $223.10. This puts POT nearly 50 points over our "short" strike price with only a week and a half until expiration. We should be able to coast to the finish line in this one.

MNX 187.50-182.50 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$40.00 per contract profit potential

With the NASDAQ leading the way down today, it was certainly bad news for our MNX spread. It slid $4.82 in today's session, taking the index down to $192.43. The MNX not only fell through its 200-day moving average (black line) today, but it also dropped beneath its 50-day moving average (red line). This was a very bad sign. However, we still have a couple decent support levels on the chart. The key for our spread is to have the index bounce back, even if it's a temporary move to the upside. With not a lot of time left in the cycle, we just need a little more breathing room heading down the home stretch.

AAPL 165-160 JUNE BULL PUT SPREAD (15 contracts entered on 05/28/08)

$50.00 per contract profit potential

Apple has traded with some increased volatility since Steve Jobs introduced the new iPhone earlier this week. The fascinating thing is that much of the talk that followed the event is about the health of Steve Jobs. Because he looked very thin in his appearance, rumors started circulating that he might be suffering from a significant illness. However, the company has quickly responded by stating that he is simply suffering from a common bug. We'll have to wait to see how this plays out. Although the stock lost $4.83 in today's session, the 2.60% decline is certainly in line with the NASDAQ's tumble on the day. Our position is still sitting in good shape at this time with a little over a 15-point cushion. For now, let's sit tight and see how things unfold over the next few sessions.

RUT 650-640 JUNE BULL PUT SPREAD (15 contracts entered on 05/27/08)

$50.00 per contract profit potential

Friday's selling in the RUT has continued this week. The index gave back another $14.74 in today's session and finished the day at $717.88. The good news is that we had a very large safety net heading into this week. Even after the substantial selling that we've seen in the RUT, we are still sitting comfortably in this spread. With not a lot of time left in the June cycle, we should be fine in this position.

As always, Trade Happy and Trade Smart

Oil surged with vengeance on Friday, making its biggest one-day gain ever. After drifting to the backburner at the beginning of last week, oil put up a furious rally on Thursday and Friday. Its triumphant return spelled trouble for stocks across the board. With a spike in the jobless rate, it seemed like the perfect storm for the Market on Friday.

Crude had three things going for it on Friday; another bullish report from an analyst, escalating tensions in the Middle East, and of course, the plummeting dollar. The 13-percent increase in oil prices over the last two trading sessions puts crude up more than 40-percent for the year. On Friday, its record rise of $10.75 a barrel leaves the price of crude at a staggering $138.54 on the New York Mercantile Exchange.

Friday's bullish prediction from Morgan Stanley puts the price of crude at $150 a barrel by July 4th. The firm's reasoning for the increase is due to the rising demand in Asia. Although the U.S. consumption is below last year's usage, the International demand is easily making up for the difference.

The latest Middle East scare came from an Israeli official who said that an attack on Iranian nuclear sites is unavoidable. The official also hinted that his country has the blessing of the United States for such an action.

If those two issues weren't enough, the dollar also crumbled for the second straight session. With oil priced in U.S. dollars, any fall in the greenback usually increases the value of crude. This comes after the dollar actually was picking up steam earlier in the week, which was good news for the inflation front.

In economic reports on Friday, the Labor Department spooked traders with its announcement of the sharpest rise in unemployment in 22 years. The rate spiked by a half percentage point to 5.5-percent in May. However, the overall decline of Nonfarm Payrolls was actually better than expected at -49,000. Analysts were looking for a loss of -60,000 jobs.

Friday's report lowers the chance of the Federal Reserve raising interest rates in the near future. With inflation at high levels, an increase in interest rates would help to confront this issue. As of Friday, futures traders reduced the likelihood of a quarter-point rate hike by November to 50-percent.

Friday's Economic Data

The Dow Jones Industrial Average took a wicked beating on Friday. The 394-point drubbing was its worst loss since February of 2007. After running back up to its 50-day moving average (red line) on the chart a week earlier, the Dow wasn't able to come close to it last week. Instead, it took another leg lower on the chart and confirmed for us a near-term bearish pattern. Based on its recent trading pattern, it is going to be difficult for it to bounce back to the bullish side. The index closed at a decent support level on the chart, but based on Friday's candle, it will probably encounter a little more selling on Monday (at least at the open). If it's able to stabilize, it would be an encouraging sign for the Market. If not, we'll be watching to see how it handles the remaining support levels on the chart.

The S&P 500 was holding up better than the Dow on the chart last week until Friday. That's when it broke below its 50-day moving average (red line) and plummeted 43 points. The 3.1-percent loss took the index down to 1,360. It also closed at a decent support level on the chart, but we are concerned about additional selling on Monday's open. If it doesn't hold at its current level, next stop could be 1,340.

The Nasdaq Composite has been fairing better than the other two indices over the last several months, but wasn't able to buck the trend on Friday. It shed 3-percent and closed 75 points lower at 2,474. On the chart, it was able to run up to an old high last Thursday, but then reversed from it on Friday. The rough end of the week took the index back below its 200-day moving average (black line) on the chart. Although we continue to feel positively about the tech-laden index, Friday's trading does raise a big red flag. Any time this happens, we want to proceed with caution and lose any preconceived bias.

After Thursday's solid gains across the board, it appeared that this month's spreads could easily coast to the finish line. Of course, then came Friday's bloodletting. Any wicked candles like Friday's always raises a big caution flag. Although all of our spreads are still sitting relatively comfortably, more ugly candles like Friday's could change that.

Due to this, we will continue to monitor all of the Market internals for any signs of additional deterioration. If we see this, we could close some spreads out early to take the risk off the table and lock in some profits. However, our preference would be to make it to expiration with our spreads intact. For now, let's take a look at all of them in detail..................

CURRENT JUNE SPREADS

POT 175-170 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$50.00 per contract profit potential

Potash was able to defy the rest of the Market on Friday when it ran up to an all-time high intraday, but eventually it fell like everything else. On the session, it lost $2.00 and closed out the week at $216.85. However, it made substantial gains over the last five trading sessions and has left us sitting very comfortably heading into the final two weeks of the June options cycle. POT is currently trading $41.85 over our "short" strike price.

MNX 187.50-182.50 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$40.00 per contract profit potential

The MNX ran into a buzz saw on Friday, which wiped out all of its gains on the week. It tumbled $6.47 on the session and finished the day at its low. The index broke through a support level at $200 during trading on Friday and closed at $199.04. This puts the MNX at another support level on the chart at $199. With the wicked red candle on Friday, we're not sure if this support will hold. It's likely going to face some selling on the open that could take it down another level or two. Despite this, we are still in decent shape in this spread with a cushion of $11.54. We also have all of its major moving averages above our strike prices along with several good support levels that should help us down the stretch.

AAPL 165-160 JUNE BULL PUT SPREAD (15 contracts entered on 05/28/08)

$50.00 per contract profit potential

Apple attempted to stay in positive territory on Friday, but the afternoon trading environment proved too difficult for it to overcome. It finished the session 2.0% lower at $185.64. Although it succumbed to the selling on Friday, the stock still looks relatively strong on the chart. With anticipation of its new 3G iPhone remaining at a near fervor, we don't expect the stock to lose too much momentum. Even with Friday's selling, we still have over a 20-point cushion in this spread.

RUT 650-640 JUNE BULL PUT SPREAD (15 contracts entered on 05/27/08)

$50.00 per contract profit potential

After breaking solidly through its 200-day moving average (black line) on Thursday, the RUT took a sharp reversal on Friday. It lost $22.90 on the session and fell back below the moving average. The vicious tumble on the chart left the index at $740.37 at the close. Despite the heavy selling on Friday, we still have nearly 90 points between the RUT and our "short" strike price in this spread. On the chart, our position looks extremely safe.

As always, Trade Happy and Trade Smart

Stocks surge early, but can't hold onto gains. The major indexes finished the session mixed after economic data came in better-than-expected, but credit issues are back in the headlines. Meanwhile, oil seems to be yesterday's news as the price of black gold continued to drift lower at the government's weekly inventory report.

This morning's economic data came in better than expected in the ADP employment report. The data showed an unexpected spike of jobs added in the private sector last month. Analysts had been expecting a loss of 30,000 jobs in May, however, today's numbers showed an addition of 40,000 jobs.

Today's ADP report is a good sign heading into Friday's government non-farm payroll numbers. The Street often uses the ADP as an indicator of how the more important report will come in on Friday. Analysts are just as gloomy heading into Friday's release with their expectations of a 58,000-job loss in May. If the data comes in as good as today's findings, it will be very good news for the economy and Wall Street.

There was also good news in the U.S. service sector today when the Institute for Supply Management announced growth in May. The report showed a reading of 51.7 for the previous month, which was the second straight month of expansion. Today's reading indicates an improvement in economic conditions and should help to calm the anxiety in the services sector.

There was a pullback in stocks across the board early in the afternoon after Moody's warned that it might downgrade the rating on the two largest bond insurers. Recently, Moody's referred to mounting losses from mortgage securities that will impact the ability of MBIA and Ambac to maintain their capital levels. Word of this potential downgrade helped to wipe out a lot of the gains on the session.

Credit problems continued to be at the forefront with Lehman Brothers Holdings facing pressures from a deteriorating stock price and a looming earnings announcement that is expected to be its worst ever. After two straight days of sharp losses in its stock price, the company stepped in and bought its own shares in an attempt to stabilize its price today. However, according to The Wall Street Journal, the firm is seeking capital from overseas investors and also faces another possible downgrade from Standard and Poor's Corp. Any additional downgrades could force Lehman to come up with $5.4 billion in additional collateral, according to an analyst covering the stock. Time will tell if they can avoid the same fate as Bear Stearns.

Oil continued to lose its luster on Wednesday despite a surprising drawdown in U.S. inventories. It was the second straight week that the EIA (Energy Information Administration) reported a larger-than-expected drop in supplies, but traders sold off the futures anyway. Analysts were dismayed by a 4.8 million barrel decline in supplies last week.

On the other hand, traders were perplexed by the contrary data from the American Petroleum Institute, who reported a 2.2 million barrel increase over the same period that the EIA reported a decline. There was also data that showed high prices have started to cut into demand. This was found in the MasterCard Spending Pulse survey that showed U.S. consumption fell 4.7-percent last week. The EIA also reported that gasoline demand had dropped over the last four weeks by 1.4-percent over last year's numbers.

By the time the closing bell rang, oil had tumbled $2.01 a barrel and settled at $122.30 on the New York Mercantile Exchange. This has been the lowest price in crude in nearly a month.

Today's Economic Data

The Dow Jones Industrial Average ran out of steam on Wednesday afternoon and finished the session down 12 points at 12,390. In the morning, the index ran up to a resistance level near 12,500 but couldn't hold. The fractionally lower close meant that the Dow has closed lower every day this week. If it continues to show weakness, we'll be watching to see if it can hold above the next support level on the chart at 12,300.

The S&P 500 also turned in its third straight losing session. The 0.03-percent loss takes the index down to 1,377 and keeps it below its 50-day moving average (red line) on the chart. This moving average is very important support and resistance level for the index.

The Nasdaq Composite bucked the trend today when it gained 22 points and finished the day at 2,503. However, it once again wasn't able to hold above its 200-day moving average (black line) on the chart. The Nasdaq will need very strong momentum to finally hold above this barrier.

Although the indices have struggled so far this week, our spreads have performed very well. With only two and a half weeks remaining in this options cycle, we're not sure we could be sitting much better. However, it's important to keep a close eye on all of our positions to make sure we don't see these profits slip away. For now, let's take a look at all of them in detail..................

CURRENT JUNE SPREADS

POT 175-170 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$50.00 per contract profit potential

Potash had two very good session this week on Monday and Tuesday. Yesterday's performance was helped when Monsanto received an analyst upgrade, causing gains in Agribusiness stocks across the board. However, POT gave back $3.11 in today's trading and finished the session at $208.38. Even with this loss, we are sitting in very good shape in this spread with nearly 35 points between the stock and our put spread.

MNX 187.50-182.50 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$40.00 per contract profit potential

The MNX ran into a little selling in the first two sessions of the week, but bounced back with a $2.47 gain in today's trading. On the chart, the index has found solid support at $200 and we'll continue to monitor this level closely. Wednesday's closing price of $202.15 gives us almost 15 points of breathing room in this spread.

AAPL 165-160 JUNE BULL PUT SPREAD (15 contracts entered on 05/28/08)

$50.00 per contract profit potential

Apple started the week by once again testing resistance on the chart at $190, but then has been retreating since. In today's session, it lost $0.18 and finished at $185.19. This leaves us with a 20-point cushion and plenty of very good support levels on the chart above our strike prices. Those two things should help us make it to the finish line with our spread intact.

RUT 650-640 JUNE BULL PUT SPREAD (15 contracts entered on 05/27/08)

$50.00 per contract profit potential

Small-cap stocks continue to perform well, which has been great for our RUT spread. The index turned in a solid 4-point gain in today's session, closing at $743.71. Similar to the Nasdaq, the RUT has been testing resistance at its 200-day moving average (black line) on the chart. Although it didn't hold above it today, we're sitting in excellent shape in this spread. With less than three weeks left in this cycle, we have a 93-point cushion in this spread.

As always, Trade Happy and Trade Smart

We got what we wanted.......but will it last? Oil finally started to pullback and the economic reports didn't spell doomsday, this provided enough ammunition for the bulls to start to nibble away at stocks. This allowed the major indices to post solid gains on the week and finish May with hopes of a continued rally.

Although crude moved up $0.73 on Friday, it was where it started that gave the Street a little sigh of relief last week. There was certainly plenty of whipsaw trading in oil futures, but the good news was that the price dipped below $125. Crude came back to finish the week at $127.35 a barrel, much lower than the $135 a barrel that the Street saw one week earlier. The nearly 4-percent drop was welcomed news to traders.

Friday also capped off the month of May, where traders saw oil gain nearly $14 in one month. To put this in perspective, just think that one year earlier, oil was under $62 a barrel. Also, last month's move up in oil was the biggest gain since futures began trading in the early 80's. The only question is whether this is just another bubble, or has oil now moved into a new trading range? The answer to that question will likely determine the short-term direction of the Market. For us, it would nice to see the big bubble burst.

The economic data on Friday came in as expected across the board. Data on consumer income and spending both showed small gains in April. The problem is that when income is growing at the same pace as spending, it usually means that consumers are only able to keep up with the rising food and energy costs. This means that discretionary income is the one that gets cut back. The translation is not optimistic for retailers or the economy as a whole. After all, consumer spending fuels more than two-thirds of the nation's economic activity.

Meanwhile, PCE also came in at expectations. The core PCE, which excludes food and energy, moved up 0.1-percent over the previous month. However, it remains at an elevated level. With it sitting 2.1-percent over last year, it's slightly over the Fed's comfort zone. The Federal Reserve would like the year-over-year number to stay between 1% and 2%.

The pressure the consumer has been under showed up in Friday's Reuters/University of Michigan report on consumer confidence. Its reading of 59.5 came in as expected, but hit a 28-year low. The index has been steadily decreasing every month this year.

Friday's Economic Data

The Dow Jones Industrial Average ran up to its 50-day moving average (red line) but wasn't able to close above it. On the session, it lost 7 points and finished the day at 12,638. However, it gained 1.3-percent for the week. It appears that the Dow will need stronger momentum to hold above its 50-day moving average. The Dow struggled during the month of May with a 1.4-percent loss during that time frame.

The S&P 500 also turned in a solid performance last week with a 1.8-percent advance over the four sessions. On Friday, it edged up 2 points and finished the week at 1,400. For the month of May, the S&P 500 moved up 1.1-percent.

The Nasdaq Composite remained the strongest index last month with a 4.6-percent advance during May. On Friday, the tech-laden index jumped above its 200-day moving average (black line) with its 14-point gain. It finished the week up 3.2-percent at 2,522. We'll be watching closely to see if it can hold above its 200-day moving average this week.

Heading into this week we have the same mentality we had at the beginning of last week. All eyes will be on oil with our secondary concerns being the economic data. Actually, we wouldn't mind seeing a repeat of last week. The indexes all recovered quite nicely and if we see money continuing to flow out of oil, we could see stocks build on last week's gains. The solid gains helped us build good-sized cushions in all of our spreads. At the same time, we have one more week of time decay to eat away at the value of our spreads. As we said earlier, let's hope for another week just like the last one. For now, let's take a look at all of our spreads in detail.

CURRENT JUNE SPREADS

POT 175-170 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$50.00 per contract profit potential

Potash turned in a strong performance over the last three sessions of the week. On Friday, it gained $1.84 and finished the week at $199.07. On the chart we have several good support levels that should help us over the next three weeks. We are now breathing a lot easier in this spread with nearly a 25-point cushion.

MNX 187.50-182.50 JUNE BULL PUT SPREAD (15 contracts entered on 05/19/08)

$40.00 per contract profit potential

With the Nasdaq turning in such a strong performance last week, we were in good hands with the MNX. On Friday, it gained another $1.36 and finished the holiday-shortened week at $203.26. The index is now closing on the swing high from two weeks ago on the chart. If it can break through this resistance barrier, we could see another solid move to the upside. Our current position is sitting in great shape.

AAPL 165-160 JUNE BULL PUT SPREAD (15 contracts entered on 05/28/08)

$50.00 per contract profit potential

Apple continued marching up the chart. On Friday, it gained $2.06 and closed at $188.75. It appears poised to test resistance on the chart near $190. With so much anticipation for its 3G model, the stock could be ready to move higher. The company also had positive news Sunday when the Net Applications survey reported that Apple's share of the operating system market grew almost 6-percent last month, reaching a record share of 7.8-percent. Of course, this meant that Microsoft's Windows fell to an all-time low of 91.17-percent last month. In any case, our spread seems to be in very good shape with the stock trading almost 25 points above our "short" strike price.

RUT 650-640 JUNE BULL PUT SPREAD (15 contracts entered on 05/27/08)

$50.00 per contract profit potential

The RUT turned in another great performance last week and actually broke through a pretty significant resistance level on the chart. On Friday, it edged up $2.73, closing above its 200-day moving average (black line) on the chart. With the index sitting at $748.28, our spread is sitting in great shape with almost a $100-point cushion. Our only problem is that we weren't able to get all the auto traders filled in this position. If the index pulls back, we'll attempt to get any remaining members filled.

As always, Trade Happy and Trade Smart