After starting the week on fire Tuesday morning, the Market then faltered in the afternoon and whipsawed in trading Wednesday. Oil crumbled yesterday morning and stocks took off like a rocket, but the afternoon took back those gains and pushed the indices into the red. Today's action was not as volatile, but was still a wild ride with stocks finishing the session mixed.

The Street got some uplifting news from factory orders this morning. The Commerce Department reported a 1.3-percent jump in orders during the month of July. This was much larger than the 0.8-percent that analysts had forecasted and comes just one month after a gain of 2.1-percent in June. Today's data marked the fifth straight rise in orders, which has been benefiting from the weak dollar. This has led to strong exports for American businesses. The chart below shows how we're sitting well above the recession in 2001 and even at a higher level than we encountered during most of the 90's.

Graphic from Briefing.com

Trading this afternoon reacted to the Federal Reserve's beige book, which gave the economy a mixed bag. The release of the anecdotal data showed that economic conditions remain slow but U.S. exports have helped ease the pain. It also noted that the recent pullback in energy and commodity prices have helped tame inflationary pressures. Today's release kept the Street's expectations high that the Fed will leave the federal funds rate unchanged at 2-percent at its September 16th policy meeting.

The home mortgage industry continued to show signs of weakness today when lender GMAC Financial Services announced that it would shutdown 200 offices and lay off 5,000 employees. The downsizing will cut the company's workforce by 60-percent while the company reduces its mortgage lending business.

Meanwhile, one financial stock was able to overcome today's selling pressure. The beaten-down investment bank Lehman Brothers actually finished the day in the green after word leaked out that it was in serious negotiations with a Korean bank. We've talked about this possibility many times in the past, but evidently things are finally moving forward. Or that's what traders were banking on today when the stock found some strength. We'll continue to monitor the situation because another financial collapse would obviously not be received well in the Market.

It was another wide swing for oil today, but it finished the session down only $0.36 on Wednesday and settled at $109.35 a barrel. This comes after a huge sell-off on Tuesday after it was evident that hurricane Gustav did far less damage than was feared. The fascinating part of today's trading in oil was that the decline in crude happened even though over 90-percent of the oil production in the Gulf of Mexico remains shut down because the workers had been evacuated prior to the hurricane. While production should be up and running soon, it says something that crude can't rally when 40-percent of the U.S. production is nearly completely shutdown. This appears to be signaling another big drop in crude might be around the corner.

Today's Economic Reports

On Friday, crude actually fell $0.13 on the session and settled at $115.46 a barrel on the New York Mercantile Exchange. However, it rose much higher over the weekend in anticipation of the hurricane Gustav. However, early reports out of New Orleans had the storm weakening dramatically. We'll have to wait until we get reports from the oil companies to see how much damage the storm did in the gulf. But sitting here tonight, it sounds like we might have made it through this one in good shape. If this pans out tomorrow, we might see another drop in the price of oil as the anxiety starts to deflate.

The Dow Jones Industrial Average took off like a rocket yesterday morning, but ran into tough resistance on the chart at 11,800. This turned the index around fast and sent the Dow into negative territory at the close. The Dow struggled for nearly all of today's session, but was able to finish the day up 15 points at 11,532. The interesting part about today's trading is that the index reversed after touching its 50-day moving average (red line). Tomorrow we'll be watching to see how it handles the support and resistance that it has been battling over the last two sessions.

The S&P 500 also ran into tough resistance on the chart before reversing sharply yesterday. It then sank to its 50-day moving average (red line) in today's trading before bouncing and finishing the day above the mark at 1,274. Similar to the Dow, tomorrow's trading should be very interesting with these two barriers so close to the index.

The Nasdaq Composite also got hit hard yesterday and then dropped another 15 points in today's session. However, the index was able to close above its 50-day moving average (red line) at 2,333. To avoid another serious move downward on the chart, we need the index to hold above this moving average.  

As the Market opened for trading on Tuesday morning, it looked like we were looking at adding some serious cushions to all of our spreads across the board. Then the reversal took the wind out of our sail as the indices gave back all of those gains and then some. It was one of those cases of whiplash that still has our necks very sore just thinking about it.

The good news about today's trading is that the bulls and bears really battled hard for control of the indices. After a dramatic U-turn yesterday, we don't want that action to ignite a downward trend. With the velocity of trading being kicked up a notch today, it just shows that there's a lot of indecision in finding a direction. The end result is the Market taking a bite out of our cushions over the last two days, causing us to monitor all of our spreads very closely with contingency plans in place just in case things don't improve. If we can get a little recovery over the next two days, that would be perfect for our positions. If not, we'll have to deal with what the Market gives us. For now, let's not jump the gun. In fact, let's take a look at how each of our spreads is looking.

CURRENT SEPTEMBER SPREADS

GOOG 440-430 SEPTEMBER BULL PUT SPREAD (10 contracts entered on 08/18/08)

$60.00 per contract profit potential (put spread)

We thought we got the trend reversal that we needed in this position Tuesday morning when the stock opened the session dramatically higher. However, that faded and then today's decline of $0.84 took the stock down to $464.41. The stock has tested our support level three straight sessions. Although we still have nearly a 25-point cushion, we really want this support to hold. We'll be watching this support level very closely over the next two sessions. After all, it's certainly a logical place for the stock to change trends and head higher.

MNX 180-175 SEPTEMBER BULL PUT SPREAD (15 contracts entered on 08/18/08)

$50.00 per contract profit potential (put spread)

Our MNX spread has certainly struggled this week. After falling through its 50-day moving average (red line) on Tuesday, it took another beating today before bouncing near $182 on the chart. In today's trading, it finished the session down $1.70 at $183.31. This gives us a safety net of just over 3 points in this spread. While this isn't what we would have liked to happen this week, we're not ready to throw in the towel yet. Instead, let's sit tight and see what transpires over the next two sessions.

AZO 120-115 SEPTEMBER BULL PUT SPREAD (15 contracts entered on 08/21/08)

$50.00 per contract profit potential (put spread)

AutoZone is one stock that we haven't had to worry about so far this cycle. It defied logic both days this week with two winning sessions. In today's trading; it advanced $2.82 and closed at $141.13, a new closing 52-week high. With AZO sitting over 20 points above our put spread and plenty of support levels on our side, we shouldn't have anything to worry about in this one.

RUT 650-640 SEPTEMBER BULL PUT SPREAD (10 contracts entered on 08/21/08)

$60.00 per contract profit potential (put spread)

The RUT bounced back in today's session with $3.40 gain, taking the index up to $741.91. The small cap index continues to outperform the other indices, which is great for our put spread. With a little over two weeks left in this options cycle, our RUT spread has over a 90-point cushion. Too bad they all couldn't be sitting this well.

AAPL 160-155 SEPTEMBER BULL PUT SPREAD (15 contracts entered on 08/25/08)

$50.00 per contract profit potential (put spread)

Apple was able to stabilize in today's trading, one day after taking a big tumble. Although it gained $0.77 on Wednesday, it wasn't a sure thing early on when the stock dropped below our support level at $165 on the chart. Today's candle gives us a nice doji candle (reversal candle) on the daily chart. This gives us optimism that we might see a move up in the stock tomorrow. But like we saw in the last two sessions, the moves up don't always last. For now, we're going to keep a close eye on this position over the next two days.

As always, Trade Happy and Trade Smart