Jobs data lifts stocks early, and then financials push them higher late. The follow-through from yesterday's surge came in the face of a large rally in the price of crude. But this did little to slow down the bull stampede for the second session in a row with Financial and Energy stocks leading the indices higher.

Things looked very good in pre-market trading after a surprising jump in the ADP (Automatic Data Processing) report. According to the data, private employers hired 9,000 jobs this month. The report also revised June's job-loss number up 2,000 jobs to a 77,000 loss last month. While the numbers sparked a great deal of optimism this morning, it is important to remember is that the real market-moving data comes out on Friday in the non-farm payrolls. Traders use today's report as an indicator of how Friday's figures will come in. Today's release opened the door for a number better than the 75,000-job loss that Wall Street is anticipating on Friday.

With the credit market still feeling the pain from the mortgage meltdown, the Federal Reserve announced plans to extend its open-window policy. With today's action from the central bank, the government's emergency lending to investment banks will continue through the end of the year. The move by the Fed is to attempt to increase liquidity in the fragile credit market. The Federal Reserve also extended the Term Securities Lending Facility through January. This program is set up for investment banks to receive loans of Treasury securities for up to 28 days. The move by the Fed came after Merrill Lynch decided to clean house earlier in the week. The company made an unexpected announcement that it was writing down another $5.7 billion. It was also selling $30 billion of collateralized debt obligations for an average of $0.22 on the dollar. The surprising move by Merrill Lynch has some believing that perhaps the banks are now coming clean with all of their bad debt. If we can get all of the skeletons out of the closet, then perhaps we can see a bottom in the credit crises.

This morning's weekly EIA report on U.S. inventories showed a 100,000-barrel drawdown in supplies, which was better than the 1.1 million barrel decline that analysts had predicted. But the inventory level in gasoline fell dramatically more than anticipated. Instead of the 200,000-barrel build, gasoline dropped by 3.5 million barrels last week. The report turned around the morning decline in the price of crude before the report. By the time the closing bell rang, oil was up $4.58 to $126.77 a barrel on the New York Mercantile Exchange. This leaves the price of crude still up over 30-percent on the year. Traders were also very interested in a Goldman Sachs note that said that oil will be back to $149 a barrel before year's end.

Today's Economic Reports

After a sea-saw trading day, the Dow Jones Industrial Average enjoyed a late day rally that helped the index finish at its high of the session. The 1.63-percent gain helped the index finish the day at 11,583. On the chart, the index appears poised to take on the resistance from last week's high.

The S&P 500 enjoyed a 21-point gain on the session, which puts the index at 1,284. Today's 1.67-percent advance took it through January's low and another key support level on the chart.

The Nasdaq Composite lagged the other two indexes in today's trading, but was able to move up 10 points on the session. Its closing price of 2,329 was well off its high; nonetheless, it was a 0.44-percent gain. On the chart, the index will need to break through resistance at 2,350 to keep the positive stretch going.

Heading into this week we figured that there would be additional selling, at least at the beginning of the week. That's what we got on Monday. However, the strong buying in the last two sessions has brought the VIX (CBOE Market Volatility Index) lower and the indices higher. Keep in mind that the VIX shows the market's expectation of 30-day volatility. It is a widely used measure of market risk and is often referred to as the "investor fear gauge." That being said, a rise in the VIX usually means a decline in the Market and vice versa.

As options traders, we are always closely monitoring the movement in the VIX. After the reversal at 30-point level, we weren't sure that it was marking a Market bottom. Although it's still too early to say, the recent move below its 50-day moving average (red line) is starting to imply that's the case. The next level we'll be watching is the 20-point mark. This has been both resistance and support for the index in the past and will likely be the case this time as well.

This week's trading has worked out fairly well for all of our spreads. We made it over our big hurdle in the X spread. The rest of our positions are sitting decently heading into the final two and a half weeks of the August options cycle. Let's take a look at all of them in a little more detail.

CURRENT AUGUST SPREADS

X 120-115 AUGUST BULL PUT SPREAD (15 contracts entered on 07/17/08)

$75.00 per contract profit potential (put spread)

X came through with another outstanding earnings report on Tuesday morning, which was great news for our put spread. Because we've been bullish on the fundamentals behind the company for quite some time, Tuesday's announcement just added to our conviction. The company blew away estimates with earnings that more than doubled the previous year's results. With strong global demand for its product, we don't see this one slowing down any time soon. As a matter of fact, Standard & Poor's raised its outlook on the company today because of favorable steel market conditions. With new-found upward momentum in the stock, we shouldn't have much to worry about in this one.

RUT 750-760 AUGUST BEAR CALL SPREAD (15 contracts entered on 07/20/08)

RUT 650-640 AUGUST BULL PUT SPREAD (15 contracts entered on 07/24/08)

$80.00 per contract profit potential (call spread)

$60.00 per contract profit potential (put spread)

The small-cap index finished the session in the green, but the move wasn't as large as yesterday's. It advanced 4 points and closed at $718.86. This week's action has been good news for our put spread, increasing the cushion to 68 points. However, it has reduced the breathing room in our call spread to 32 points. The good news is that we have several resistance levels on the chart that should help slowdown the index.

MNX 195-200 AUGUST BEAR CALL SPREAD (15 contracts entered on 07/20/08)

MNX 170-165 AUGUST BULL PUT SPREAD (15 contracts entered on 07/24/08)

$70.00 per contract profit potential (call spread)

$46.00 per contract profit potential (put spread)

The MNX continues to perform perfectly for our iron condor. The index has been drifting sideways on the chart, the ideal pattern for this kind of position. It moved up a mere $0.72 on today's trading and settled at $185.28. This leaves us with a little less than 10 points on the upside and a little more than 15 points on the downside. Hopefully the pattern continues.

AAPL 150-145 AUGUST BULL PUT SPREAD (15 contracts entered on 07/24/08)

$55.00 per contract profit potential (put spread)

On Monday and Tuesday, Apple tested our support level at $155 on the chart. It was able to bounce off this area yesterday and then continued that run today. Apple gained $2.80 on Wednesday and finished the day at $159.88. Since entering our put spread, the stock's movement hasn't been ideal. Regardless of this, we still are sitting in decent shape with Apple trading almost 10 points above our "short" strike price. We'll continue monitoring this one closely.

AZO 115-110 AUGUST BULL PUT SPREAD (15 contracts entered on 07/27/08)

$45.00 per contract profit potential (put spread)

Monday's fall in AutoZone was perfect for our entry in this spread. Its decline helped us get filled and then yesterday's action padded our cushion in this position. The stock ran up higher today, but was only able to hold onto a gain of $0.22 at the close. With the stock sitting at $131.25, we are left with a 16-point safety net and a stock that's sitting at a 52-week high. Not a bad place to be in this one.

As always, Trade Happy and Trade Smart

Not even falling oil could help the indices last week. The price of crude continued to crumble, but stocks struggled with traders selling the rally hard on Thursday. Decent economic data helped the indexes finish Friday in the green, but they showed mixed results over the last five trading sessions. This was despite earnings coming in fairly good, at least topping the pessimistic forecasts.

It appears that the declining demand for crude is finally starting to cause traders to take notice. Oil shed another $2.23 on Friday and finished the week down 4.8-percent at $123.26 a barrel on the New York Mercantile Exchange.

Meanwhile, the Street got some much needed relief in the housing data on Friday when new home sales dropped sharply in June. The surprising numbers showed that June inventories sank to their lowest level since 2004. The 5.3-percent decline had some economists wondering if we're getting close to the bottom in new home sales. If housing would start to stabilize, it would relieve a lot of anxiety across the board.  

More good news on Friday came from the durable goods numbers, which showed a rise of 0.8-percent last month. This easily topped the analysts' gloomy estimates of a 0.3-percent decline for May. According to the Commerce Department figures, solid demand for defense items helped fuel the gain.

There was also evidence that perhaps the consumer is gaining some confidence in the economy. The Reuters/University of Michigan consumer sentiment index climbed to 61.2 in July. This was up from the previous reading of 56.6. Some analysts are attempting to give credit to falling oil prices. If that's the case, it seems like the consumer's confidence is hinging on only the price at the pump and not so much with food inflation. We think it's certainly both of them, but any easing is good news for the consumer.

Friday's Economic Reports

Weekly Index Recap

The Dow Jones Industrial Average was the lagging index last week with its 1.1-percent decline over the last five sessions. On Friday, it managed to rise 21 points and finish the week at 11,370. But after Thursday's wicked sell-off, anything green was welcomed with open arms. On the chart, the index has decent support at 11,200 and resistance just above 11,600. With the index sitting halfway between them, it should be an interesting week. The overall trend remains bearish, but the recovery two weeks ago gave traders a glimpse of hope for a recovery.

The S&P 500 bounced back with a 5-point gain on Friday, taking the index up to 1,257. Despite this, the index lost 0.2-percent on the week, thanks to the thrashing the S&P took on Thursday. Heading into this week, the index is sitting down 14-percent for the year. On the chart, the index closed just below the low from March. Similar to the Dow, the overall trend remains bearish. But the index has clearly rallied from mid July's low but is now facing the pressures of selling into the rallies.

The Nasdaq Composite was able to build on the prior week's gain with another 1.2-percent advance last week. Friday's 30-point gain took it up to 2,310 and secured a positive week for the Nasdaq. The tech-laden index remains the strongest on the chart and looks to possibly lead the other two higher.

It was certainly an interesting week. With stocks making a strong rally at the beginning of the week, our call spreads started to give up a lot of their cushions in a short amount of time. Heading into the August cycle, we anticipated doing a lot of iron condors. After that sharp move up on Tuesday and Wednesday, we decided to go ahead and finish off our index spreads by adding put spreads to them.

With the turmoil in the Market, it's good to have a little extra premium in our accounts in case we need it down the road. Not to mention the fact that we don't need any extra funds in our accounts to make the positions into iron condors. Instead, if you have the right broker, they will just use the premium from the call spread. It also gives us a bigger return as long as they both expire worthless.

On Monday, we are adding one more spread for the month. We are entering an August Bull Put Spread on an old favorite, AutoZone Inc. (AZO). We've taken a few months off in this stock, but feel like we have another good opening for a put spread. The company is coming off an excellent earnings report, which has helped boost the stock price. It's been able to grow its international business, while maintaining its market share domestically. We feel that its domestic presence will bounce back this quarter due to the weakened U.S. economy, which usually helps auto parts retailers. When the economy is struggling, consumers are more likely to maintain their current automobiles instead of purchasing new ones. We've seen this in the auto sales numbers, which has also helped to keep AZO's stock price propped up.

Please Note: These are limit orders and day orders.

NEW TRADE ALERT (1)

AutoZone Inc. (AZO)

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

Sell 15 August Puts at 115 strike price

Buy 15 August Puts at 110 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

AZO DAILY CHART

CURRENT AUGUST SPREADS

X 120-115 AUGUST BULL PUT SPREAD (15 contracts entered on 07/17/08)

$75.00 per contract profit potential (put spread)

It was certainly a tumultuous week in our X spread. The stock started out Monday with a nice move to the upside. Then it was hit with three days of hard selling. On Friday, it bounced back with a gain of $5.05, which took it close to where it began the week. After five days of trading, X was down just over a dollar for the week.

Heading into this week, we're sure that X will be even more exciting. The big hurdle for our put spread is Tuesday's earnings announcement before the opening bell. At the moment, we feel very good about our 21-point cushion in this spread. Our plan is to ride out the release with our strike prices intact. If anything changes this plan, we'll send out an intraday trading alert on Monday.  

RUT 750-760 AUGUST BEAR CALL SPREAD (15 contracts entered on 07/20/08)

RUT 650-640 AUGUST BULL PUT SPREAD (15 contracts entered on 07/24/08)

$80.00 per contract profit potential (call spread)

$60.00 per contract profit potential (put spread)

The small-cap index turned in another excellent week with a 2.5-percent advance. Friday's 7.95-point gain put the RUT at 710.34 when the closing bell rang. The index was able to break through its 50-day moving average (red line) last Wednesday, but then Thursday's selling took it back below the resistance level. Friday's trading brought it back up to the moving average, but it didn't have enough momentum to hold above it. We're sitting in decent shape in both our call spread and put spread. We have a little more breathing room on the put side, but there's also plenty of resistance on the call side. For now, let's sit tight and let the index trade for another week without getting overly concerned about its small moves.

MNX 195-200 AUGUST BEAR CALL SPREAD (15 contracts entered on 07/20/08)

MNX 170-165 AUGUST BULL PUT SPREAD (15 contracts entered on 07/24/08)

$70.00 per contract profit potential (call spread)

$46.00 per contract profit potential (put spread)

The MNX performed perfectly for our iron condor last week. There's nothing better then a stock or index that drifts sideways all week. Although it had decent moves in both directions, as long as it stays within the range of our spreads, we could care less about the day to day moves. With the index sitting at $184.66, it's very close to the middle of our range. We have just over 10 points on the call side and a little less than 15 points on the put side. Let's sit back and see if its current trend continues.

AAPL 150-145 AUGUST BULL PUT SPREAD (15 contracts entered on 07/24/08)

$55.00 per contract profit potential (put spread)

We took advantage of Apple's uptick in volatility following its earnings release last week. This allowed us to come in at fairly conservative strike prices in a put spread and pick up a decent credit. Although the stock took a downturn on Thursday, it bounced back with a $3.09 gain on Friday, taking Apple up to $162.12. This gives us a little over a 12-point cushion in this spread with three weeks until payday.

There was an interesting story by the New York Times on Saturday concerning the health of Apple's CEO Steve Jobs. According to the article, the CEO's recent health concerns have been blown way out of proportion. The report stated that he is not suffering from a life-threatening health problem and it is not recurrent cancer. Rumors have been running rampant about this issue, which has weighed down the stock price. Hopefully this story clears up those fears for good because we're certainly getting tired of hearing about it.

As always, Trade Happy and Trade Smart

The continued slide in oil and commodities helped the indices extend the rally. After weeks of bloodletting, the indices reversed and were able to put together a string of positive sessions. Even with earnings data showing mixed results, downtrodden sectors have helped to fuel the current bullish trend in the indices.

The earnings front showed a mixed bag of results last night and this morning. Some of the large-caps came through, topping pessimistic expectations. While not all of them were able to please the Street, there were enough to keep the recent optimistic surge going.

Oil continued its trend lower today even though inventories declined sharply last week. In the weekly EIA (Energy Information Administration) report, crude inventories declined by 1.6 million barrels, which was dramatically more than the expectations of a 400,000-barrel decline that analysts had forecasted.

Although crude supplies dropped, gasoline inventories increased by 2.8 million barrels. This was dramatically higher than the 200,000 barrels that the Street was expecting. The rise in gasoline supplies is probably related to the 2.3-percent drop in U.S. usage over the last month. There's no doubt that rising prices at the pump have caused demand to fall.

The end result of the trading day was another $3.98 drop in the price of oil, which fell to $124.44 a barrel on the New York Mercantile Exchange. This was the lowest price per barrel since the first week in June. The falling price was remarkable in that it came on a day when a hurricane was traveling through the Gulf of Mexico. There was also our weekly soap opera in Nigeria where militants threatened to blow up more oil pipelines within the next month.

The only other economic data released on the session was the Fed's Beige Book, which is a collection of anecdotal economic information. In the release, the Fed stated that all reporting districts characterized overall price pressures as elevated or increasing. It also mentioned that the economy has slowed somewhat since its last report. In addition, it stated that consumer spending was either mixed, weak, or slowing.

Today's Economic Reports

The Dow Jones Industrial Average wasn't able to hold on to all of its gains on Wednesday, but did extend its winning streak by 29 points. The large-cap index finished the session up 0.26-percent at 11,632. On the chart, it is now encountering old support levels that have changed to resistance levels. These barriers make it difficult for the index because traders start to lock in gains at these areas. We'll be watching the index very carefully to see how it handles these levels.

The S&P 500 also continued its run into positive territory today with its 5-point advance. The index has enjoyed the recent strength in financials. At today's close, the S&P is sitting at 1,282. The next barrier on the upside is going to be at 1,300 on the chart. The index will need some strong upside momentum to get over this hurdle.

The NASDAQ Composite had a very strong performance early in the session, but ended up giving back a big portion of today's gain. However, it still led the way with its 0.95-percent rise on the day. The 21-point gain leaves the index at 2,325.

This week's move in the indices helped us get filled in two new call spreads on Monday. Now the question looms, is the recent rally just a Bull Trap (a false signal indicating that a declining trend in a stock or index has reversed and is heading upwards when, it actually will continue to decline)? The falling commodities and strength in financials just adds to the quandary. While we're on the fence as to which way it goes, we're not going to sit idle as the rally eats into our cushions in our call spreads. Instead, we're going to add put spreads to these positions, making them into iron condors.

We are also moving forward with a new put spread on Apple. As many of you know, we've been strong bulls on this company for a very long time based on the fundamentals and growth story. Apple just came through with another strong quarter, but then did the usual sense of caution for the future. It really feels like a broken record. Every quarter the company tries to give a very conservative forecast and then everyone overreacts about how gloomy the future is. As usual, this is short-lived and the temporary sell-off is then replaced with a surging stock price. Since we haven't changed our stance on the company, we feel very good about coming in with an August Put spread at very conservative strike prices.

Please Note: These are limit orders and day orders.

NEW TRADE ALERT (3)

RUSSELL 2000 INDEX (RUT)

OPENING 650-640 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 650 strike price

Buy 15 August Puts at 640 strike price

Total Credit 0.60 per contract

Potential Profit $800.00

MINI-NASDAQ 100 INDEX (MNX)

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

Sell 15 August Puts at 170 strike price

Buy 15 August Puts at 165 strike price

Total Credit 0.46 per contract

Potential Profit $690.00

Apple Inc. (AAPL)

OPENING 150-145 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 150 strike price

Buy 15 August Puts at 145 strike price

Total Credit 0.55 per contract

Potential Profit $825.00

APPL DAILY CHART

CURRENT AUGUST SPREADS

X 120-115 AUGUST BULL PUT SPREAD (15 contracts entered on 07/17/08)

$75.00 per contract profit potential (put spread)

After bouncing back to the upside on Monday, X has given back those gains and then some over the next two days. In today's session alone, it tumbled $5.42 and finished at $140.59. The 3.71-percent fall leaves the stock just above a support level on the chart at $140.00. Although the pullback in commodities has been good news for equities in general, it has hurt our put spread on X. But even with its recent downturn, we still have over a 20-point cushion in this spread. The true test for this spread will come next week when the company reports earnings. For now, let's sit tight and see what takes place the rest of the week.

RUT 750-760 AUGUST BEAR CALL SPREAD (15 contracts entered on 07/20/08)

$80.00 per contract profit potential (call spread)

The small-cap index took a breather one day after it raced higher. It traded higher in the session, but closed up $2.37 at $719.19. Despite the small move up, it was able to get above its 50-day moving average (red line) on the chart. However, it struggled at a key resistance level on the chart. The RUT also has a falling 200-day moving average (black line) to contend with at $730. We'll be watching this index carefully to see if the resistance can slow it down.

MNX 195-200 AUGUST BEAR CALL SPREAD (15 contracts entered on 07/20/08)

$70.00 per contract profit potential (call spread)

The MNX didn't fare as well as the other indexes yesterday, but was able to gain $2.40 in today's session. Wednesday's 1.32-percent advance took the Mini-Nasdaq 100 Index up to $184.56. Although any positive day isn't necessarily good for our call spread, we still have plenty of room between the index and our strike prices. After today's move, the MNX is still trading 10 points below our $195 strike price.

As always, Trade Happy and Trade Smart

Falling oil and surging financials put a band aid on the indices last week. After weeks of bloodletting, the indices reversed and were able to put together a string of positive sessions. Even more impressive is that the catalyst behind last weeks optimism was the same instigators of this year's selloff. The price of crude started to deflate after tension between the U.S. and Iran showed signs of improving. Then the financials put together a few better-than-expected earnings reports and led the charge higher over the last five sessions. The question now is, was this a one week wonder?

If we had to find one reason behind last week's rally, we'd have to go with oil's decline. The price of black gold fell over 11-percent over the last five sessions, which is the largest percentage decline since 2004. Crude finished lower on Friday for the fourth straight session. It gave up $0.41 on the day and finished the week at $128.88 a barrel on the New York Mercantile Exchange.

Worldwide demand has been dropping off sharply, mainly due to the elevated prices. However, decreasing tensions with Iran seems to be helping to remove some of the anxiety premium that has pumped up the price of oil. Of course, we all know how crazy the leader of Iran is and this could easily flare up again on a moments notice. But if the price continues to fall this week, it would be very good news for equities. If not, the longer-term bearish trend will remain in effect.

With earnings season fully underway, the Street was pleasantly surprised by some of the earnings in the financial sector. The strong release from Wells Fargo got things started on the right foot and then Citigroup helped continue the momentum. Although there was plenty of pain in the write-downs, the results weren't as painful as some were anticipating. There was also a strong rebound in both Fannie Mae and Freddie Mac, which were helped by the government coming to the rescue. The end result was an industry that advanced over 11-percent on the week.

Despite the sense of optimism or just plain relief rally, not all financials had a rosy week. Merrill Lynch bombed after it posted write-downs that were nearly double what analysts were looking for.

Along the same lines of disappointment, some of the tech icons fell well short of the Street's expectations. Microsoft, Google, and Advanced Micro Devices all turned in earnings misses, which took a big bite out of the Nasdaq's gain on the week. It also started some analysts to wonder if tech names are not immune to the current economic slowdown. In the recent Market decline, tech has been faring much better than the rest of the stocks due to the anticipation that business spending will hold up better than discretionary stocks or consumer oriented companies. The focus on Monday will be Apple's report after the closing bell.

The Dow Jones Industrial Average was able to extend its winning streak on Friday when it gained almost 50 points and finished the week at 11,496. This was quite remarkable when you consider that the index closed below 11,000 earlier in the week. On the chart, the problem is that all of the old support levels have now become resistance. For the week, the large-cap index advanced 3.6-percent.

The S&P 500 also extended its winning streak to three days on Friday. Although the index only moved up fractionally on Friday, it gained 1.7-percent over the last five sessions. On the chart, the S&P closed right at a resistance level at 1,260. We'll have to wait until tomorrow to see if it can break through this level and continue last week's gains.

The NASDAQ Composite surged higher on Wednesday and Thursday, but the earnings caused the index to pullback on Friday. It lost nearly 30 points on the final trading day of the week and finished the session at 2,282. This took a big bite out of the week's gain, which turned out to be a 0.4-percent advance.

The best thing about Friday is that it brought an end to the July options cycle. After suffering a causality earlier in the cycle (PCLN), we ended up taking another big hit on Friday (X). The sell-off in commodities caused a lot of pain in our put spread last month. The speed of the profit taking caused us to believe that the stock would bounce off the oversold conditions and then retrace to levels above our put spread. The stock did move back above our spread on multiple occasions, but couldn't hold. If it would have just been able to tag along with the rally in the indices, we would have been home free. Unfortunately, this wasn't the case. While we couldn't avoid the loss at the end of the month, we were able to pick up some premium in August by coming in with a put spread at even lower levels. Despite the sell-off, this new position is sitting at a very conservative level. Let's take a look at how we turned out last month.

EXPIRED JULY SPREADS

CLOSED JULY SPREADS

*This total does not include the August Put Spread on X, which has a profit potential of $1,125.00

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

RUT 730-740 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$45.00 per contract profit (put spread)

$60.00 per contract profit (call spread)

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

MNX 195-200 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit (put spread)

$45.00 per contract profit (call spread)

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

X 185-190 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$480.00 per contract loss (put spread)

$55.00 per contract profit (call spread)

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08 & closed on 07/02/08)

$280.00 per contract loss

It certainly was one of our worst performing months, but now it's time to make some of that money back. We are entering two new spreads on tomorrow's open. Although last week's rally was encouraging, the overall trend remains bearish. Based on that, we are going to start off with a couple of call spreads on the RUT and MNX. Similar to last month, we wouldn't be surprised if we end up making both of these spreads into iron condors. But for now, let's go with the trend and pick up a nice premium on the call side.

Please Note: This is a limit order and day order.

NEW TRADE ALERT (2)

RUSSELL 2000 INDEX (RUT)

OPENING 750-760 AUGUST BEAR CALL SPREAD (15 contracts)

Sell 15 August Calls at 750 strike price

Buy 15 August Calls at 760 strike price

Total Credit 0.80 per contract

Potential Profit $1,200.00

MINI-NASDAQ 100 INDEX (MNX)

OPENING 195-200 AUGUST BEAR CALL SPREAD (15 contracts)

Sell 15 August Calls at 195 strike price

Buy 15 August Calls at 200 strike price

Total Credit 0.70 per contract

Potential Profit $1,050.00

RUT DAILY CHART

MNX DAILY CHART

CURRENT AUGUST SPREADS

X 120-115 AUGUST BULL PUT SPREAD (15 contracts entered on 07/17/08)

$75.00 per contract profit potential (put spread)

X continued its tumble on Friday when it lost $2.70 and finished the week at $142.49. We were holding out on our July spread with anticipation that a solid earnings report from Nucor would help the sector rise. Obviously, that didn't happen. We now have plenty of time for the stock to reverse the recent downtrend. We still feel very bullish on the fundamentals for X and believe that it will bounce back with conviction. After last week's move, we currently have over a 20-point cushion in this spread.

As always, Trade Happy and Trade Smart

X has continued to fall this morning. Due to this, we are going to close out our July Put Spread. Then we are going to open up a new August spread at lower strike prices.

Please Note: The closing out of the current spread only applies to those members in the July Put Spread. The new August spread applies to all members. The August spread will be a Limit Order and Day Order. The close out of the July spread will entered as a Market Order.

X TRADE ALERT

United States Steel Corp. (X)

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

Buy 15 July Puts at 165 strike price (Puts we previously sold) 

Sell 15 July Puts at 160 strike price (Puts we previously bought)

We suggest using a Market Order to get filled quickly

United States Steel Corp. (X)

OPENING 120-115 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 120 strike price

Buy 15 August Puts at 115 strike price

Total Credit 0.75 per contract

Potential Profit $1,125.00

Strong earnings and falling oil gives a much needed relief rally. The beaten-down financials shot higher on Wednesday after Wells Fargo posted strong earnings. This came the morning after Intel's positive release and helped bolster investor confidence. Then the mid-morning oil inventory report caused another round of selling in oil, spurring the rally in equities.

A surging stockpile in U.S. supplies sent the price of crude to a three-week low. The weekly inventory report showed a surprising rise of nearly 3 million barrels, dramatically higher than the 1.6 million barrel decline that analysts were expecting. Traders were also surprised by an unexpected jump in gasoline inventories, which nearly doubled the Street expectations with a 3.2 million barrel jump in supplies. The reports helped extend the downward momentum in the price of oil after yesterday's biggest drop since the early 90's. At the closing bell today, crude was down $4.14 to $134.60 a barrel on the New York Mercantile Exchange.

Today's bullishness helped a lot of fear dissipate on the Street. The VIX (CBOE Market Volatility Index) took a sharp turn south as the indices went north. It fell 12-percent on the session and closed below the 25-point level at 24.94.

The buying in financial stocks came on a day that the Securities & Exchange Commission announced that it was curtailing the ability to "short" certain banks and infamous Freddie Mac and Fannie Mae. This comes after reports that the SEC is investigating claims from Bear Stearns and Lehman Brothers that short sellers have been spreading false rumors and then profiting from rapid declines. According to a story in The Wall Street Journal, both companies have blamed traders at Goldman Sachs for manipulating the firms' stock prices by taking part in these types of actions.

Today's rebound in the indices was hard to see early on when the CPI data came in much hotter than expected. The pre-market report by the Labor Department showed a big jump in both headline and core inflation. The indexes' rise of 1.1-percent in June was worse than the 0.8-percent that the Street was expecting. Data suggests that food and energy are filtering down to the consumer. At the same time, the core CPI, which excludes food and energy, came in higher than economists had expected. For June, it ticked up to 0.3-percent.

This afternoon, the minutes from the last FOMC meeting was released. In the notes, the committee appeared to be more concerned about inflation and its effect on the economy's growth. The policymakers mentioned that upside risks to inflation had increased. The members also hinted that the next policy change would probably be a rate increase. But with continued uncertainty in the economy, this is likely to be pushed off into the distant future.

Friday's Economic Data

After falling below the 11,000-point level yesterday, the Dow Jones Industrial Average pushed back above it today with its 276-point gain. The 2.5-percent advance was the index's biggest one day move since April. If it can continue the move upward, the next hurdle will be resistance near 11,400.

After reversing at our support level near 1,200 yesterday, the S&P 500 galloped 2.5-percent today and finished the session at 1,245. Today's 30-point gain was helped by the strength in financial stocks. A very positive sign was that the index closed at its high of the session. In previous rally attempts, the last hour of trading has always met with traders selling the rallies.

The NASDAQ Composite led the way higher today with its 3.12-percent move. Today's move of nearly 70 points wiped out nearly a week worth of losses. Similar to the other indices, the index closed at its high of the session at 2,284.

Keep holding steady. That's the course that we've taken this week. With the strong belief that the selling was extremely overdone and indicators suggesting a decent bounce coming, we held firm in our positions all week. It was certainly painful, especially when MNX and RUT started to flirt with trouble. But with our strong belief in a sharp reversal coming, we held firm. Today was the session that we had been waiting for. Although it was welcomed with open arms in both our MNX and RUT spreads, unfortunately, X wasn't able to turn the tide around. At least enough for our put spread. But we haven't thrown in the towel just yet. We plan to give it one more session before pulling the plug. If we don't get it back above our strikes, at least we know that we've given it every opportunity to go our way. We'll discuss this more below, but for now, let's take look at all our spreads in more detail.

 CURRENT JULY SPREADS

CLOSED JULY SPREADS

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

RUT 730-740 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$45.00 per contract profit potential (put spread)

$60.00 per contract profit potential (call spread)

We had to hold on tight in this spread yesterday when the index appeared to be headed straight for our "short" strike price. But, it reversed near a good support level on the chart and then put together a massive rally in today's trading. The index wiped out 10 sessions of losses with Wednesday's 24-point advance. Its closing price of $686.75 leaves us in a very comfortable place with only one full day of trading in this spread. With the index sitting between our put spread and call spread, we're feeling very good about this one.

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

MNX 195-200 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$45.00 per contract profit potential (call spread)

The MNX also gave us a little scare yesterday before recovering in today's session. It surged $4.56 and finished the session at $184.39. This gives us a cushion of $6.89 on the put side and $10.61 on the call side. Similar to the RUT spread, this one is sitting exactly where we want it. As long as we avoid a massive move in either direction, we should be in good shape.

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

X 185-190 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$55.00 per contract profit potential (call spread)

Then there's the trouble maker. Unfortunately, it has been a wild ride in X this cycle. It was truly a roller coaster in this one with it falling near our $150 support numerous times and then bouncing back above both our strike prices on several occasions. Obviously with 20-20 hindsight, it would have been nice to close it out on one of those moves back above our "short" strike price.

This position would probably go down as the only spread that we've ever held this far in-the-money. It probably has been the only spread that we've ever held this late in the cycle when it's in-the-money.

The reason we decided to give it one more night is because steel giant Nucor Corp. is releasing earnings tomorrow pre-market. If we get a solid report, it would surely move X much higher. If not, we shouldn't be any worse off than we already are.

For tomorrow, keep a close eye on your email for an adjustment in this one. If it continues to show weakness, we might let it ride until the afternoon to see if anything dramatic happens. Unless it moves above both our strikes tomorrow, we'll be shutting it down.

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08 & closed on 07/02/08)

$50.00 per contract original credit

$330.00 per contract closing debit

$280.00 per contract loss

As always, Trade Happy and Trade Smart

Friday's roller coaster session capped off another volatile week on the Street. The blame for this week's deterioration was our old favorite....oil and financials. The price of crude was poised for a decent pullback this week until false rumors about the Middle East jacked the price back up near record levels. Meanwhile, more erosion in Fannie Mae and Freddie Mac stocks kept investors on the edge of their seats while rumors swirled, ranging from collapse to government intervention. Evidently, the "sell in May and go away" crowd took the old saying literally this year.

The whipsaw trading on the final day of the week could be directly related to Fannie and Freddie. The Market started tanking big time as rumors spread about a possible government bailout of the government-sponsored mortgage lenders. However, Treasury Secretary Paulson spoke for the second straight morning, implying that the government would not step in to save the two lenders.

However, an afternoon report from news agency Reuters caused stocks to take a wicked U-turn. Equities made a major rally after Reuters reported that the Federal Reserve told the two mortgage giants that the government would open its discount window for the two government chartered companies. But when the indices had pared nearly all of their losses on the session, the Fed came out and denied that report. This news sent stocks back down the toilet. Although they didn't reach the prior lows, stocks were firmly in the red at the time of the closing bell.

After the Market close, both Fannie and Freddie tried to reassure investors that they have adequate capital to handle future mortgage defaults and foreclosures. With the situation appearing to escalate each day, Monday should be an interesting situation for both the lenders and the government. After all, the two lenders hold more than half of all U.S. home mortgages. When you consider that fact, it's easy to realize the magnitude of the situation. The Bear Stearns collapse now seems like just a drop in the bucket compared to these two mortgage giants.

According to a late-breaking story today in The Wall Street Journal, the U.S. Treasury and Federal Reserve are taking steps to help shore up the mortgage giants. According to the news report, the government is concerned about another major blow to investor confidence on Monday when Freddie Mac is due to sell $3 billion of short-term debt. With anxiety already swirling last week, the government is worried that an unsuccessful sale would once again rile the Markets. According to the report, Treasury officials were calling potential buyers over the weekend to urge them to participate on Monday. With things like this going on in the background, we had little doubt that the government would let these two fail, no matter what Secretary Paulson said publically last week.

In tonight's report, the government announced that it has granted the Federal Reserve Bank of New York the authority to lend to the two companies if necessary. In the plan, the two mortgage companies would pay the same 2.25-percent that applies to commercial banks and large Wall Street investment banks. Along with this, Treasury Secretary Paulson is asking Congress to expand its $2.25 billion line of credit that Fannie and Freddie currently have with the government. Tonight's move was obviously meant to help ease the fear before the Markets in Asia opened. We'll have to wait until tomorrow morning to see if it helped prop up the U.S. Market.

The spillover from Fannie and Freddie was felt all over the financial sector on Friday. Already beaten down Lehman Brothers took another thrashing on Friday when it tumbled over 16-percent on the session. Any stock with exposure in mortgages felt the pain on the session.

If that wasn't enough fun on the day, we have the usual soap opera going on in the oil pits. Crude spiked to another new intraday high of $147.27 a barrel thanks to a rumor that Israeli warplanes are practicing in Iraq for a bombing of the Iranian nuclear sites. However, the Pentagon came out and denied the rumors as false. Then there were concerns about a possible worker strike in Brazil on Monday, which could disrupt supplies. Of course, it wouldn't be another session without more unrest in Nigeria's oilfields. But it's hard to believe that this isn't baked into the cake on almost every session. We kind of set our clock by what time the latest pipeline is attacked in Nigeria.

Friday's Economic Data

The Weekly Recap shows that the NASDAQ was able to hold up the strongest last week (looking at the three main indices) with only a 0.3-percent loss over the last five sessions. But on a year-to-date look, the three main indices are all sitting nearly the same. On the other hand, the RUT was able to finish the week in the green and is holding up better for 2008. This is one reason why we feel more bullish on this index than on the others.

Weekly Recap

The Dow Jones Industrial Average dropped below the 11,000 barrier during Friday's trading, but was able to finish the day 100 points above it at 11,100. The 128-point loss on the session put the index down 1.7-percent on the week, and off 22-percent since last year's high. This keeps the index firmly in Bear Market territory. Friday's low is the key support that we'll be watching this week on the chart.

The S&P 500 also got roughed-up during Friday's session, but was able to finish the day off its low. On the day, it lost 1.1-percent and closed at 1,239. It is sitting at a support level on the chart, but with the recent trend in the index, we'd have to be fools to bet that this level will hold. However, if it did, that would be a step in the right direction.

The NASDAQ Composite was able to finish the session well off its low and just above where it opened. Despite this, it still gave up 18 points on the day and finished the week at 2,239. On the chart, it finished the week at a decent support level. But that has done very little to help the index in the past. This week, we'll be watching to see how the index performs at this level and the support levels just below.  

It was another wild week for our spreads as the indices and stocks traded erratically. The end result is somewhat positive for our positions with both the RUT and X leaving us in much better position this Sunday than we were in the last one. The difference in MNX is about a wash with it sitting a little lower, but another week has gone by in time decay. With time starting to run out in this month's cycle, we'll be forced to keep all of our spreads on a much tighter leash. We'll probably be a little more lenient at the beginning of the week, but heading into the final few trading sessions, the last thing we will want to do is let a stock sit below our "short" strike price. If this happens, be on the look out for a trade alert. For Monday, let's buckle up tight and not let the volatility shake us out of our spreads. If we can ride out a little more anxiety, we might just get paid for our suffering.

 CURRENT JULY SPREADS

CLOSED JULY SPREADS

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

RUT 730-740 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$45.00 per contract profit potential (put spread)

$60.00 per contract profit potential (call spread)

The Small-Caps gave us a nice reversal last week at a very good support level on the chart. The RUT was able to outperform the major indices on Friday and actually finish the session in the green. It advanced $4.51 on the day and finished the week at $674.95. This gives us close to a 35-point cushion in our put spread with only four trading days left in the cycle. On the call side, we're sitting in even better shape and should have nothing to worry about in this one. This week, we'll keep a close eye on the put side for any signs of weakness.

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

MNX 195-200 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$45.00 per contract profit potential (call spread)

The MNX finished off its low on Friday, but still gave up $2.87 on the session. With the index closing the week out at $181.09, we're not left with a lot of breathing room in our put spread. On the other hand, our call spread appears to be in a very safe place. On the chart, we have decent support at $180. We also have decent support at our "short" strike price. Hopefully we don't need to test both of these levels this week. Our goal is to make it past the first few sessions without having to make an adjustment. Let's try to use some more patience in this one.

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

X 185-190 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$55.00 per contract profit potential (call spread)

Our patience paid off last week when we got a good bounce in X. If we would have encountered a better Market, we probably would be sitting much better at this point. After moving back above our "short" strike price on Thursday, U.S. Steel dropped back below on Friday when it lost $1.83. It finished the session down 1.11-percent at $163.56. Meanwhile, our call spread appears to be money in the bank on this one. Heading into this week, we're going to give it a little more time on the put side to see if it can regain that upside momentum. However, if it starts to fall apart again, keep a close eye on your email for any adjustments.

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08 & closed on 07/02/08)

$50.00 per contract original credit

$330.00 per contract closing debit

$280.00 per contract loss

As always, Trade Happy and Trade Smart

Tech and Financial reignite the downward slide. On an otherwise slow news day, technology and financial stocks got hammered by analysts on concerns that the slowing economy has taken a bite out of growth. This took the wind out of the sails from this morning's positive tone after last night's better-than-expected earnings from Dow component Alcoa. The end result was another steep tumble across the board.

The effect of a slowing economy is what drove analysts to raise concerns over Cisco Systems. The worrisome talk sent investors scurrying from tech names. Intel also took a beating on the session as traders anticipate a disappointment in earnings next week.

Financial stocks got slammed when with Fannie Mae and Freddie Mac leading the way down. After leading the charge higher yesterday, the two stocks took major haircuts today as traders anticipated that accounting-rule changes could force Fannie Mae and Freddie Mac to raise $75 billion in additional capital.

It was a slow day on the economic front with only the government's weekly inventory report scheduled. The data from the EIA report showed U.S. supplies falling by 5.9 million barrels last week. That figure was a much larger drop than the 1.9 million barrels that the Street was expecting. That news should have been bullish for the price of crude.

On top of that, Iran launched nine missiles in a practice run for retaliating against a possible strike by Israel on its nuclear facilities. The combination of these two events caused a pop in the price of oil intraday, but by the time the closing bell rang, it was only up one penny. Oil closed at $136.05 a barrel on the New York Mercantile Exchange. Crude is down over 6-percent this week, which should be good for the Market. However, traders are concerned that this is only a temporary pullback instead of a leg down in the commodity. It would probably need to lose another 6-percent before it would directly move stocks higher.

Today's Economic Data

With the focus now turning to earnings results, worries that a weak U.S. economy are stoking fears of more disappointments. High inflation and slow growth has caused some on the Street to push off the economic recovery into 2009.

The Dow Jones Industrial Average gave back all of yesterday's gains and then some. The large-cap index tumbled 236 points in today's trading and finished the session at 11,147. It was ugly across the board for the index with 25 of its 30 stocks moving lower on the day. On the chart, it broke below the support at 11,200 and closed at its low of the day. Next stop for the index appears to be at 11,000.

The S&P 500 moved above yesterday's high early in the session, but then tanked. It fell 29 points on the session and moved into Bear Market territory. The 2.3-percent loss on the day takes the index down to 1,244. On the chart, the S&P 500 has some support at 1,240. But today's close at the low of the trading day is not a good sign for tomorrow.

The NASDAQ Composite got whacked in today's trading. It gave back 2.6-percent on the session and finished the day at 2,234. The 59-point loss puts the tech-laden index at a support level on the chart. Similar to the other two indices, with the NASDAQ closing at the day's low, we aren't optimistic about it holding above the support.

After yesterday's strong advance, we were starting to feel very optimistic about making it to the finish line with our spreads intact. Of course we were even more delighted after Alcoa's earnings report beat the Street's forecast and then the new price target for X caused it to move back above both our strike prices. But the afternoon selling wiped away that optimism with stocks tanking into the closing bell. Despite the heavy selling today, for the most part, our positions are sitting better tonight than they were in Sunday night's newsletter. With that said, let's take a look at them in detail.

 CURRENT JULY SPREADS

CLOSED JULY SPREADS

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

RUT 730-740 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$45.00 per contract profit potential (put spread)

$60.00 per contract profit potential (call spread)

The Small-Caps held up a little better than the major indices. It didn't give back all of yesterday's gain, but any giveback was more than we like to see. It shed $18.97 in today's session and finished the day at $663.75. We'll be watching the support level under Tuesday's low to see how the index handles this line. If it can hold at this level, we'll be in good shape. If not, we'll be keeping it on a tight leash heading into the final week and a half of the July cycle.

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

MNX 195-200 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$45.00 per contract profit potential (call spread)

The MNX took out all of yesterday's gain in Wednesday's session. It lost $5.21 in today's trading and closed at $181.92. The 2.78-percent loss left the index at its low of the session and appears to be headed towards our $180 support level on the chart. We have plenty of breathing room in our call spread but are losing it in our put spread. We'll be closely monitoring this one the rest of the week to see how it holds up at that $180 level. A break below it might cause us to take a defensive play in this spread.

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

X 185-190 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$55.00 per contract profit potential (call spread)

We rode out an incredible amount of pain in this position this month because we were confident the stock would bounce back in a strong way. We got that today when Deutsche Bank increased its price target on the stock to $240. It also received positive news from a UBS analyst who said X was her top choice in North American steel makers. These notes along with Alcoa's earnings caused X to take off like a rocket this morning. It surged to a high of $170.27 today before the afternoon selling cut that gain in more than half. It finished the day up only $7.62 at $158.17. This leaves the stock below both the strike prices in our put spread. However, if we can get a break in the extreme moves down in the indices, we expect X to continue moving up the chart. Due to this, we are going to continue to give this position a little longer leash than normally. Let's sit tight and see what unfolds in the next couple sessions.

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08 & closed on 07/02/08)

$50.00 per contract original credit

$330.00 per contract closing debit

$280.00 per contract loss

As always, Trade Happy and Trade Smart

The selling finally ran out of steam on Thursday's holiday-shortened session. A strengthening dollar and economic data that was in line with expectations helped drive stocks into positive territory. Although we usually don't put too much emphasis in light trading days, after the rough stretch of losing sessions, we'll take whatever positive move we can get.

There was good news for the dollar when the ECB (European Central Bank) increased interest rates by a quarter of a point. The move was an attempt to help fight inflation pressures in Europe. At the same time, the ECB signaled that it isn't likely to raise rates again in the near future. The American greenback surged on the news, which hasn't happened very often lately.

Pre-market on Thursday, traders breathed a sigh of relief when the Labor Department's data came in as expected. The highly anticipated Non-Farm Payrolls dropped by 62,000 jobs in June, but was in line with analysts' expectations. Meanwhile, the May numbers were revised down by 13,000. Also in the report, June's unemployment rate held steady at 5.5-percent. This pre-market data got trading off on a positive foot as futures jumped into positive territory.

However, the optimism was short-lived. A mid-morning report from the Institute of Supply Management showed more weakness in the service sector. Analysts were expecting a reading of 51.0 for June (any number above 50 indicates expansion). But when the report came out, it showed a disappointing number of 48.2, indicating contraction in the service industry.

Today's Economic Data

There was no relief in sight for crude on Thursday. It moved up another $1.72 on the session and finished the week at another record high. The1.2-percent advance put oil at $145.29 a barrel on the New York Mercantile Exchange.

The Dow Jones Industrial Average closed in positive territory on Thursday with a 73-point advance. The rare green finish put the index at 11,288 heading into the holiday weekend. Despite the advance, the index remains down nearly 15-percent on the year and still in Bear Market territory. On the chart, the Dow has found some support from the 11,200 level. However, we wouldn't get overly excited about the support level until we see a substantial move to the upside. Unless this happens, it's probably just a breather on the way down to the next level.

The S&P 500 also finished in positive territory on Friday, but its 0.1-percent gain was nothing to write home about. After trading in a wide range, the index finished the session at 1,262 and just above the March low on the chart. Last week's action continued the downward trend on the chart. For the year, the S&P 500 is off 14-percent.

The NASDAQ Composite wasn't as lucky as the other two indexes on Thursday. It finished the shortened session off 0.3-perccent and near its low of the week. The tech-laden index is down over 15-percent on the year and remains in Bear Market territory (down over 20% from last October's high). With the NASDAQ closing at 2,245 there's little reason for optimism when looking at its chart. Although we have plenty of support levels on the chart, they've provided very little relief in the selling as of late.

We made it through the week, but not without a significant amount of pain. Last week's drop in PCLN caused us to pull the ejection cord on that spread, which inflicted a significant loss. Then our X spread started to deteriorate rapidly. Because we were still extremely bullish on the fundamentals of this stock and on the possibility of a quick recovery, we kept our position intact. We just can't imagine the stock not bouncing back when the world could be facing a worldwide steel shortage. X was able to get back a few points on Thursday, but still remains well underwater. We'll discuss this one in more detail below. We weren't able to get the rest of the auto traders filled in the call spread last week. For tomorrow, we're going to drop the credit a nickel and send it back in. We realize that we need a decent move up in the stock price, but let's just have our order working in case this happens.

X TRADE ALERT

Please note: This only applies to those members in the July Bull Put Spread and were not filled or completely filled on Wednesday. We are placing this as a Limit Order and a Day Order.

United States Steel Corp. (X)

OPENING 185-190 JULY BEAR CALL SPREAD (15 contracts)

Sell 15 July Calls at 185 strike price  

Buy 15 July Calls at 190 strike price

Total Credit 0.50 per contract

 CURRENT JULY SPREADS

CLOSED JULY SPREADS

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

RUT 730-740 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$45.00 per contract profit potential (put spread)

$60.00 per contract profit potential (call spread)

The Small-Caps didn't share in the gains on Thursday when it finished the shortened session in negative territory. The RUT had been holding up decently for us until last week rolled around. Its loss of $6.56 on Thursday took the index a little closer to our "short" strike price. The good news is that we only have two weeks left in the July options cycle. The bad news is that we only have a little over 25 points of breathing room in this spread. Last week we were able to add a call spread, which made this position into an iron condor. This gives us a little extra premium to help ease the pain if the index continues to fall. For now, let's not get too excited until we see what unfolds this week.

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

MNX 195-200 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$45.00 per contract profit potential (call spread)

The mini NASDAQ 100 was able to outpace the regular NASDAQ on Thursday when it scraped out a $0.02 advance. The index fell briefly, taking it close to the $180 support level on the chart before recovering and finishing the day in positive territory. The MNX finished the week at $181.64, which is about 4 points above our put spread. The good news is that we were able to add a call spread to our position last week, making it an iron condor. Heading into this week, the pressure remains on our put spread. We'll continue to monitor the situation very carefully over the next few days and will send out any additional alerts if needed.

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

X 185-190 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$55.00 per contract profit potential (call spread)

We got the bounce that we were looking for, but there was a little left to be desired. Once again X traded in a wild fashion on Thursday, but was able to finish the session ahead $2.40. However, with X now sitting at $155.80, our put spread remains deep under water. On the chart, Thursday's bounce was at a decent support level. But now we need some strong upside momentum in order to minimize our loss. We have a few things up our sleeves in this spread, but we want to see how the Market opens on Monday morning. For now, let's sit tight and see what transpires. But keep a close eye on your email for an adjustment in this one.

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08 & closed on 07/02/08)

$50.00 per contract original credit

$330.00 per contract closing debit

$280.00 per contract loss

As always, Trade Happy and Trade Smart

The sell-off continues. Stocks were hampered on Wednesday when oil hit another all-time high, which sent investors scrambling for safety. The end result caused havoc in our spreads while sending the Dow and NASDAQ firmly into bear territory with the S&P 500 close behind.

Unlike yesterday's trading, the selling accelerated into the closing bell as money flowed out of stocks and into bonds. With the indices declining to multiyear lows and pessimism reaching extreme levels, bearish sentiment seems to be growing.

Today's pessimism started early when the ADP report showed a 79,000-job loss in June. The decrease in U.S. private sector jobs was much more than the 20,000-loss analysts had forecasted. In the most recent reports, the private sector had surprised analysts on the positive side. Today's surprise to the downside doesn't bode well for tomorrow's more-important non-farm payroll report. The Street often uses the ADP as a gauge for what to expect on the more significant data that's set to be released tomorrow morning.

Besides the downbeat job loss data, the Street seemed consumed with a Merrill Lynch downgrade of General Motors. The analyst downgraded GM and mentioned that it's not impossible for the company to fall into bankruptcy. This comes just one day after GM surprised the Market with better-than-expected sales, which helps spur yesterday's rally. Today's news pummeled GM's stock, taking it down 15.1-percent and below $10 a share for the first time since 1954.

With the pessimism already running rampant, the midmorning Energy Information Agency report just added fuel to the fire. The data showed a surprising decline of two million barrels last week in U.S. inventories. The news sent crude to another record high of $143.57 a barrel on the New York Mercantile Exchange. The $2.60 jump in today's session put oil up over 50-percent on the year.

Oil traders were already on edge due to the Middle Eastern tensions between Iran and Israel. With Israel threatening to bomb Iran's nuclear facilities, Iran threatened that it would react fiercely if attacked, which would raise the price of crude dramatically. With this kind of tension remaining high, it's hard to see the price of oil coming down anytime soon. Keep in mind that this doesn't even take into account the supply disruptions in Nigeria and Iraq that have also concerned traders in the pit.

There were more problems for the dollar on Wednesday when it fell against both the euro and the yen. This comes one day ahead of the European Central Bank's decision on interest rates. It's widely anticipated that the ECB will raise its key rate by 25 basis points to 2.45-percent as a way to fight rising inflation.

Treasury prices were the beneficiary of falling stocks. Investors ran for safety in both the two-year note and the benchmark 10-year Treasury.

Today's Economic Data

The Dow Jones Industrial Average put together several rally attempts today, but each one was hit with quick profit-taking. That was until late in the session when there was just an avalanche of selling, which took the index down 166 points on the session. This put the index down 20.8-percent from last year's high, which means a Bear Market. It also remains down over 15-percent on the year. On the chart, we have a little support at 11,200. But after this, the next stop could be 11,000.

The S&P 500 tumbled 23 points in today's session and closed at 1,261. The 1.8-percent loss puts the index down 14.1-percent on the year. Although this index is not in the textbook definition of a Bear Market, it is getting close with a 19.4-percent drop from last year's high. On the chart, the S&P is sitting just above the March low on the chart. If it falls through this support level, it could get ugly once again.

The NASDAQ Composite started the session above yesterday's close, but wasn't able to hold on to those gains. Eventually it was hit with heavy selling and finished the day 53 points lower at 2,251. The 2.32-percent drubbing on the session put the tech-laden index into Bear Market territory with a decline of 21.3-percent from last October's high. On the chart, it has a way to go before it reaches the lows from January and March. But if the trend continues, it might be sooner rather than later.

We held firm in our spreads on Tuesday and thought we were sitting in decent shape after the rally yesterday afternoon. But when the selling returned this morning with increased velocity, we needed to take action. We started off by attempting to add a call spread to our PCLN. But when the stock picked up selling momentum, we needed to bail out of our put spread. With the stock continuing to fall the rest of the session, we weren't able to get filled on the call side.

We made the decision to sit tight in our X put spread, but made the position into an iron condor. We were able to get a portion of auto traders filled on the call side. We will add a trade alert for tomorrow's open for those members not filled or completely filled today. Obviously, X didn't bounce today. Although X started to stabilize in the early afternoon, the late session selling did a lot of damage to our put spread. The stock broke below both of our strike prices and then continued to fall. With the stock already below our strikes, we're going to sit tight on tomorrow's open and see if we can get a bounce. Even if we do get a bounce, we're likely to unwind our put spread. We don't want to lay out our plan tonight because we don't want to get hammered on opening prices. But keep a close eye on your email for a morning trade alert.

X TRADE ALERT

Please note: This only applies to those members in the July Bull Put Spread and were not filled or completely filled on Wednesday. We are placing this as a Limit Order and a Day Order.

United States Steel Corp. (X)

OPENING 185-190 JULY BEAR CALL SPREAD (15 contracts)

Sell 15 July Calls at 185 strike price  

Buy 15 July Calls at 190 strike price

Total Credit 0.55 per contract

Our other two trading alerts were the addition of call spreads to our put spreads, making them into iron condors. We're certainly not out of the woods in these other two positions (RUT & MNX), but we're sitting in decent shape considering the dramatic selling that we've encountered. Let's take a look at all of our positions in more detail.

 CURRENT JULY SPREADS

CLOSED JULY SPREADS

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

RUT 730-740 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$45.00 per contract profit potential (put spread)

$60.00 per contract profit potential (call spread)

After putting together a nice rally yesterday, Small-Caps got slaughtered in today's session. The RUT dropped 19.25 points in a 2.78-percent loss. The selling took the index through multiple levels of support on the chart and left it sitting at $672.34 at the close. This week's trading has taken away a big chunk of our cushion in this spread. Due to this, we added a call spread in today's session, which should help us handle the pain on the put side. We'll continue to monitor this position closely in tomorrow's session and will send out any alert if needed.

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

MNX 195-200 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$45.00 per contract profit potential (call spread)

The last four sessions have been brutal to this index. In today's trading, the index tumbled $4.65 and closed at $181.62. We also added a call spread to this position, making it into an iron condor. This will help us if the MNX continues to falter. But with the current downward angle in this chart, we wouldn't be surprised to see a little recovery in the index, even if it's short-lived. For now, let's sit tight and see what unfolds tomorrow.

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

X 185-190 JULY BEAR CALL SPREAD (15 contracts entered on 07/02/08)

$50.00 per contract profit potential (put spread)

$55.00 per contract profit potential (call spread)

There's no doubt that falling auto sales and a declining economy will have an effect on the price of steel, but X's two day drop of over 31 points was unreal. As we mentioned above, we're going to wait for the open tomorrow to determine which adjustment to make. With the non-farm payroll coming out pre-market, it's likely to have a big impact on tomorrow's trading. We also expect to see a recovery in X. Keep a close eye on your email tomorrow morning for a trade alert in this one.

PCLN 115-110 JULY BULL PUT SPREAD (15 contracts entered on 06/26/08 & closed on 07/02/08)

$50.00 per contract original credit

$330.00 per contract closing debit

$280.00 per contract loss

We attempted to get into a call spread in this one, which would have lessened our pain in closing out the put side. But with the stock in a free-fall, that effort was futile. This caused our close-out price to be much more then we would have liked to see. With only three current positions using funds, we're going to explore opportunities to make some of those losses back this month.

As always, Trade Happy and Trade Smart