Stocks rallied on Friday but finished the week lower despite a small Santa Claus rally. Friday's uneventful session gave the Street a small lift heading into the weekend. As expected, it was very light trading on the final session the day after Christmas. Actually, the last week of trading was nothing new with plenty of ugly economic data. However, the drop in volatility was definitely a nice trend that continued.

The retail sector was the big focus on Friday with analysts trying to determine just how painful the holiday season has been. According to early reports, sales have been 8% lower this December over last year's numbers. Of course, this is in line with November's data that was also 5.5% under last year. We'll have to wait to see if the days after Christmas were able to help retailers. Meanwhile, online retailers were surging after Amazon reported record sales this holiday season with a surge of 6.3 million orders taking place on December 15th alone.

General Motors also got a boost on Friday after the Federal Reserve came to the rescue right before Christmas. The government allowed GM's financing arm, GMAC, to become a bank holding company, which allows it to access funds through the Treasury's TARP program. This news helped give a boost to the automakers on Friday. We remain doubtful that it will last. Especially since GM has just announced that it will be heading back to Congress early next year for more funding requests. According to the company spokesman, GM has been in contact with the incoming Obama administration and Congress regarding the company's plans and needs.

We got a start to the Santa Claus rally last week, we'll see if the jolly fellow comes through this week. According to the Stock Trader's Almanac, the last five trading days of the year and the first two trading days of the New Year make up the Santa Claus rally period. But even if he decides to show up, there's no doubt that this year will close out with some very serious losses for 2008.

Friday's Economic Reports

The Dow Jones Industrial Average finished the week with a 47 point gain on Friday. The 0.56% advance takes the index up to 8,515. However, for the week, the index lost 0.7% and remains off over 35% on the year. On the chart, the Dow appears to like support at 8,400, but remains below its 20-day moving average (light blue line) and 50-day moving average (red line).

The S&P 500 also moved up on Friday when it gained 4 points and finished the week at 872 points. That amounted to a .54% gain in the index, but still resulted in a 1.7% loss on the week. This leaves the S&P down 40.6% on the year. Similar to the Dow, the S&P remains below its 20-day moving average (light blue line) and 50-day moving average (red line). We'll be watching to see if it can make it back above these two moving averages.

The Nasdaq followed suit on Friday with a 0.35% advance. The 5-point gain on the session left the tech-laden index at 1,530 heading into the weekend. However, that still didn't help the Nasdaq make it into positive territory on the week. It fell 2.2% last week, which puts the Nasdaq down 42% for 2008. However, unlike the other two indices, the Nasdaq is sitting above its 20-day moving average (light blue line) on the chart. But it is below its 50-day moving average (red line). Just like the other two indexes, we'll be watching to see if it can make it back above this moving average this week.

The VIX (Chicago Board Options Exchange Volatility Index) continued to fall on Friday when it lost 0.83 points on Friday, which takes the fear index down to 43.38 and keeps its downtrend intact. This is a very good sign for the Market heading into this week.

Last week turned out picture perfect for us. There was low volatility, but enough for us to get filled in a couple new spreads. With this week also being holiday-shortened, we are hoping for the exact same result. We're going to try to get into new spreads on Monday and then hope for another uneventful week.

The first two spreads are going to be the addition of call spreads to our current put spreads (RUT & OIH). With our expectations that this cycle will be more of a sideways pattern or trading range, we want to take advantage by making our positions into iron condors. At the same time, we are staying with our trading plan of using stops in case either position moves against us. This should keep any potential loss small by taking in premiums on both sides.

Then we are adding a new put spread on Google Inc. (GOOG). Since hitting a bottom back in November, the stock has risen nicely on the chart. Its recent pullback came after it hit its 50-day moving average (red line) on the chart. We certainly anticipated this retreat to its 20-day moving average (light blue line). We now believe that it will again test its 50-day moving average and could easily break through it. If it does not, we'll come back with a call spread, making the position into an iron condor. For our new put spread, we are placing the strike prices at very conservative levels, which are below the November low. This should help us ride out any unanticipated drop in the stock price. We feel very good about this new position.

Please Note: These are Limit Orders and Day Orders.

NEW TRADE ALERT (3)

RUSSELL 2000 INDEX (RUT)

OPENING 560-570 JANUARY BEAR CALL SPREAD (10 contracts)

Sell 10 January Calls at 560 strike price

Buy 10 January Calls at 570 strike price

Total Credit 0.55 per contract

Potential Profit $550.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $555.00. For auto traders, we will send in a close-out order if this happens.

Oil Services HOLDRs (OIH)

OPENING 85-90 JANUARY BEAR CALL SPREAD (15 contracts)

Sell 15 January Calls at 85 strike price

Buy 15 January Calls at 90 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $82.50. For auto traders, we will send in a close-out order if this happens.

Google Inc. (GOOG)

OPENING 240-230 JANUARY BULL PUT SPREAD (10 contracts)

Sell 10 January Puts at 240 strike price

Buy 10 January Puts at 230 strike price

Total Credit 0.60 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $245.00. For auto traders, we will send in a close-out order if this happens.

GOOG DAILY CHART

CURRENT JANUARY SPREADS

RUT 370-360 JANUARY BULL PUT SPREAD (10 Contracts entered on 12/22/08)

Potential profit of $55.00 per contract

The RUT bounced back on Friday with a $6.28 move to the upside. The 1.33% surge on the final session of the week left the index at $476.77 heading into the weekend. It also took the RUT back to its 50-day moving average (red line) on the chart. This is the level we'll be watching extremely closely this week. A break above it will give the index some upside momentum while a rejection could push it back down to the nearest support level. Either way, we anticipate a sideways pattern for the foreseeable future.

OIH 55-50 JANUARY BULL PUT SPREAD (15 Contracts entered on 12/22/08)

Potential profit of $55.00 per contract

After struggling at the beginning of the week, OIH ticked up $2.29 on Friday and closed out the week at $69.66. While this was good news for our put spread, the ETF remains near the lower end of its trading range and close to its pivot low at the beginning of this month. We need this support level to hold in order for our put spread to expire worthless this cycle. By adding a call spread to this position, this should give us some extra credit to work with in case we need to make an adjustment in this spread.

As always, Trade Happy and Trade Smart

So Santa showed up on Friday......for the automakers. The anxiety over the automakers subsided on Friday when the White House came to the rescue. This helped alleviate the concerns of another shock to the economy that a bankruptcy might cause. With this predicament appearing to be off the table, volatility continued to subside. This helped stocks finish mostly higher on the session.

After days of anticipation, the big news came on Friday. The White House finally decided to throw a lifeline to the Big Three automakers. Well, evidently only two of them needed the current life preserver for now. After Congress failed to come to the rescue, the current administration felt that the risk to the economy was too large. It announced on Friday that the government was willing to lend $17.4 billion in TARP funds. Of course, in order to do this, Congress will need to release the second half of the TARP funds. But just like its previous legislation pertaining to the bailouts, it's never a done deal until it passes both houses. We could have some more drama on our hands.

Oil fell another $2.35 on Friday and finished the week at $33.87 a barrel on the New York Mercantile Exchange. For the week, crude fell 26.8% and pushed the losing streak to six straight sessions. The trouble for oil last week was intensified by this week's decision by the Central Bank to cut interest rates. Not only did this hurt the value of the dollar, it also turned the pressure up on oil. However, Friday's move had more today with futures expiration than anything else. With this in mind, we expect oil to be up quite a bit on Monday because the spread between January and February was fairly dramatic.

The Dow Jones Industrial Average finished the week with a 25 point drop on Friday. The 0.3% decline left the index at 8,579 at the close. For the week, the Dow lost 0.6% or 50 points. On the chart, the index fell below its 50-day moving average (red line) but held above its 20-day moving average (light blue line).

The S&P 500 was able to finish the day in green territory on Friday with a 0.2% move to the upside. For the week, the index gained 0.9% and finished at 879 points. On the chart, the S&P fell below its 50-day moving average (red line) but is holding above its 20-day moving average (light blue line).  

The Nasdaq Composite moved up 0.8 on Friday and closed at 1,564. It held up the best on the week with an actual gain of 1.5-percent over the last five sessions. It also looks the best on the chart. Although it fell back below its 50-day moving average (red line), it didn't break far below it and could easily test it again this week.  

The VIX (Chicago Board Options Exchange Volatility Index) continued its descent down the chart on Friday when it tumbled 2.41 points and finished the week at 44.93. This is the best indicator that the Market has stabilized. There has to be a big reduction in fear before we can start to move higher and the last two weeks have laid the groundwork for that possibility.

The monthly chart on the VIX shows just how wild the last few months have been. We've soared to historic highs and now we appear to be headed back towards the highs in 1998 and the early 2000's. A year ago we would have thought those levels were crazy. Times have certainly changed.

Friday marked the end to another options cycle, but it was anything but an easy session for us. Once again, OIH gave us a scare when it decided to tank on Thursday. Due to this, we sent out a revised trading plan pre-market on Friday stating that we were going go give the position a little more wiggle room on the final trading day of the session. We lowered our exit trigger price by a dollar with the hope that a little more room would prevent us from closing out a good spread. Fortunately for us, OIH held up nicely on Friday and it turned out to be a good session for all of our spreads.

The only issue this month was our first put spread on OIH. While it was only one session that caused us pain, it was certainly was a bad feeling when the ETF reversed after causing us to close out our put spread. Although we would have liked to not close out that spread early, we learned our lesson a few cycles ago and didn't want to risk a large loss. By taking this preemptive action, we limited the cost that we were able to overcome with the rest of our spreads. While that took away a big profit this month, it did allow us to walk away with some change in our pockets even with a spread going against us. Let's go ahead and add up the totals from this month.

CLOSED/EXPIRED DECEMBER SPREADS

OIH 60-55 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/25/08 & closed on 12/05/08)

Loss of $124.00 per contract

RUT 350-340 DECEMBER BULL PUT SPREAD (10 Contracts entered on 11/28/08)

Profit of $60.00 per contract

AAPL 75-70 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/28/08)

Profit of $55.00 per contract

OIH 65-60 DECEMBER BULL PUT SPREAD (15 Contracts entered on 12/11/08)

Profit of $45.00 per contract

DECEMBER TOTAL $240.00

Although the total was nothing to write home about, we'd certainly rather have a profit than a loss. This is especially true in this type of trading environment. With fear starting to subside and the indices starting to stabilize, we should be getting to a much improved environment that will lend itself to some very good spreads. If we can just tread water on months like the last two and then start to increase our spreads and contracts when the Market improves, we should be in very good shape.

Heading into this week, it should be a little bit volatile due to a large number of participants taking time off. We also have a shortened trading week and sessions that are also likely to cause some large swings. However, we doubt the movement is anywhere close to the dramatic swings that we are used to. After all, a VIX at 50 seems like the old 15 or 20 to us.

Let's take advantage of the shortened week by getting a couple new spreads started for January. The first one is going back to our tried and true RUSSELL 2000 INDEX (RUT). We've had some easy spreads in this index the last few months and want to keep the streak going. We are starting with a put spread at very conservative strike prices. While we do see a slight pullback in the near future, we do believe that the RUT has been showing us a lot of strength. However, like last month, if we see a good opportunity to add a call spread to the position, we are going to take advantage of it. While we didn't get filled last month, we do see the same type of opportunity for January.

Our second spread is heading back to the Oil Services HOLDRs (OIH). Although we got shaken out of our original put spread last month, we got back on the horse and got back some of our money. While the volatility is likely to continue, we feel that by placing our strike prices at conservative strike prices we should be able to take advantage of the premium on the put side. This very likely could be another opportunity to be an iron condor this month. While demand continues to be under pressure, we do believe that oil will start to gain ground due to the global consequences of low prices. We feel very good about starting on the put side in this one.

NEW TRADE ALERT (2)

RUSSELL 2000 INDEX (RUT)

OPENING 370-360 JANUARY BULL PUT SPREAD (10 contracts)

Sell 10 January Puts at 370 strike price

Buy 10 January Puts at 360 strike price

Total Credit 0.55 per contract

Potential Profit $550.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $375.00. For auto traders, we will send in a close-out order if this happens.

Oil Services HOLDRs (OIH)

OPENING 55-50 JANUARY BULL PUT SPREAD (15 contracts)

Sell 15 January Puts at 55 strike price

Buy 15 January Puts at 50 strike price

Total Credit 0.55 per contract

Potential Profit $825.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $57.50. For auto traders, we will send in a close-out order if this happens.

RUT DAILY CHART

OIH DAILY CHART

With the Market closing early on Wednesday and remaining closed on Thursday, we will not have another newsletter this week. However, if we do see more trading opportunities we will send out a trading alert at night. Until then, enjoy the time off and let's see if we can get a nice profit for the New Year started on Monday with our new spreads.

As always, Trade Happy and Trade Smart

With the final day of the cycle here and OIH flirting with our trigger price, we feel the need to lower it by one dollar. Hopefully this will allow us to make it to the finish line without having to close out this spread. Please find the Trade Alert listed below.

IF OIH TOUCHES $66.50

Oil Services HOLDRs (OIH)

CLOSING 65-60 DECEMBER BULL PUT SPREAD (15 contracts)

Buy 15 December Puts at 65 strike price (puts we previously sold)

Sell 15 December Puts at 60 strike price (puts we previously bought)

Use a Market Order to get filled quickly.

Stocks take a breather one day after the Fed went all in. The Federal Reserve finally put all their chips on the table yesterday and the Market responded with a massive rally. Traders liked the action by the Fed, which is an attempt to boost both lending and borrowing. Although stocks moved into positive territory this afternoon, most of them gave back those gains by the time the closing bell rang.

The Central Bank's move yesterday was certainly historic in nature. The government not only took the federal funds rate down to a range of 0 to 25%, but it also signaled that it was going to keep rates low for some time. Thus, the committee was speaking directly to the Market with no ambiguity. The move by the FOMC was seen as a way to help unfreeze the credit markets and help consumers and businesses access financing. Essentially, the government is flooding the market with funds.

Of course, some feel that low interest rates during the last recession led to our current headaches while also deflating the value of the dollar. Yesterday's move by the Fed not only sent stocks racing higher, but the dropping dollar caused a run on commodities and traders looked for a way to hedge against the falling currency. At the same time, the FOMC said that it is considering the possibility of buying Treasurys. Essentially this would mean that the government is printing more money and continuing the devaluation of the currency.

Tuesday's news from the Fed came on the same session that the government announced the largest decline in home building in over 25 years. In November, housing starts fell nearly 19%, decreasing the annual rate of production to only 625,000 units. This is actually good news for the housing market because it means a reduction in supply. Until the current inventory dries up, it's impossible for the housing market to bottom.

Today's Economic Reports

Oil finally started to falter today after a much bigger than expected jump in U.S. supplies. The weekly Energy Information Administration announced an increase of 525,000 barrels to a supply of 321.3 million barrels on hand. This was over five times the expected level and made up for the anxiety over the large production cut from OPEC. Initial reports from the cartel indicate a reduction in output of nearly 4.2 million barrels a day. However, this amount included a previously announced cut, which makes the new cut more in line with expectations of only a 2.2 million barrel addition to the previous cut. The end result of today's data was a drop of $3.54 in the price of crude. It settled at $40.06 a barrel on the New York Mercantile Exchange.

After climbing 360 points yesterday, the Dow Jones Industrial Average gave back nearly 100 points today. Its 1.1-percent loss takes the index down to 8,824 points, but leaves it above its 50-day moving average (red line) on the chart. However, the Dow has struggled to get through resistance at 9,000. We'll be watching both of these barriers the rest of the week.

The S&P 500 also broke through its 50-day moving average yesterday, but then gave up 8 points in today's trading. The 0.96% decline takes the index down to 904 points. Similar to the Dow, this index has struggled with resistance on the chart at 920. The S&P is currently sitting between this resistance line and support from its 50-day moving average.

Unlike the other two indices, the Nasdaq Composite hasn't been able to make it through its 50-day moving average (red line) on the chart. Instead, it closed just below it today when it shed 10 points and closed at 1,579. The problem for the tech-laden index is that it also has a strong resistance level at 1,600 on the chart. However, if it can break through this, it could signal another leg up on the chart.

The VIX (Chicago Board Options Exchange Volatility Index) continued to drift lower this week and finally broke the 50-point level today. It fell 2.53 points today and closed at 49.84.

After yesterday's strong rally, we figured it would be smooth sailing to expiration. Of course, we got a little excitement this morning in our Apple spread when the company issued a press release stating that its CEO, Steve Jobs, would not be giving the keynote address at Macworld Expo. This news gave the stock a quick haircut this morning and brought back the jitters surrounding the health of the CEO. While this was not good news for our Apple put spread, we're still sitting in pretty decent shape with not a lot of time left. Other than that spread, the rest of our positions are sitting very comfortably with time running out in the December options cycle. Our only disappointment is that we weren't able to make our RUT spread into an iron condor on Monday. With that said, let's take a look at the rest of our positions in detail.

CURRENT DECEMBER SPREADS

OIH 60-55 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/25/08 & closed on 12/05/08)

Loss of $124.00 per contract

RUT 350-340 DECEMBER BULL PUT SPREAD (10 Contracts entered on 11/28/08)

Potential profit of $60.00 per contract

Contingent Stop Order set at $355.00

The Russell 2000 index actually outperformed the major indices today when it gained 3.74 points. The 0.77-percent advance takes the index above its 50-day moving average (red line) and leaves it sitting at $486.59. With the RUT moving up sharply yesterday and then adding to it today, we shouldn't have anything to worry about in our December put spread.

AAPL 75-70 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/28/08)

Potential profit of $55.00 per contract

Contingent Stop Order set at $77.50

The news about Steve Jobs took Apple down sharply pre-market and kept it down all day long. Although it was able to close off its low of the session, Apple still ended up losing $6.27 on the day. The 6.57% loss takes the stock down to $89.16. But even with this tumble our put spread is still in fairly good shape. As a matter of fact, the stock could fall by the same exact amount over the next two sessions and we'd still finish with our spread intact. Of course, we'd much rather see the stock move higher tomorrow and have nothing to worry about on Friday. For now, let's just sit tight and see what unfolds over the next two sessions.

OIH 65-60 DECEMBER BULL PUT SPREAD (15 Contracts entered on 12/11/08)

Potential profit of $45.00 per contract

Contingent Stop Order set at $67.50

OIH took a little hit today after the price of crude started to falter. But even with this downward pressure on the ETF, it only lost $0.67 on the day. The 0.84% decline takes OIH down to $79.01, leaving us with almost a 15-point cushion in this spread. This should be more than enough to make it to the finish line in this one.

As always, Trade Happy and Trade Smart

Once again, stocks shook off troubling news and finished the session in positive territory. Friday's session looked ominous early on when the bailout of the Big Three automakers was failing in Congress and the Market was shaken from news of a $50 billion Ponzi scheme by a well respected money manager on the Street. But stocks once again overcame the negativity and finished the week heading higher.

The sentiment on Thursday night was quite bleak with word spreading that the one-time chairman of the Nasdaq had been swindling money from investors for years. Regulators are now sifting through the records of Bernard Madoff, the mastermind behind the largest Ponzi scheme in history. According to early reports, Madoff was using funds from new investors to pay off old ones without the knowledge of his own family members and employees. It wasn't until recent redemptions that the scheme started to unfold. Apparently, Madoff had blown through close to $50 billion by the time authorities learned of his system. Besides the substantial loss to his investors, it damaged sentiment on the Street because if you can't trust someone so well respected as Madoff, it becomes difficult to trust anyone.

The other problem heading into trading on Friday morning was the on-again-off-again auto bailout. While the House of Representatives was able to pass legislation to provide bridge financing for the Big Three, the Senate appeared to be in a stalemate. However, then word that the Treasury was open to using some TARP funds to prevent impending bankruptcies seemed to remove the anxiety of their failure. While nothing has been finalized just yet, we do expect news from government officials in the near future.

There was some positive news on Friday when the retail sales numbers came in better than expected. After dropping 2.4% in October, retail sales actually improved to a negative 1.8% in November. While the number was still negative, it was better than what the Street was expecting and showed signs that perhaps consumer spending isn't quite as bad as anticipated.

Not to be outdone, the mid-morning University of Michigan consumer sentiment index showed that the fear is starting to subside. The data showed that sentiment has improved quite nicely to reflect 59.1 in Friday's report. This was much better than expected and was up from its previous report of 55.3.

One of the non-events on Friday was the producer price index. According to the Labor Department, wholesale prices fell greater-than-expected in November for the fourth straight month. Friday's report showed a 2.2% drop with energy prices falling hard. On Tuesday we'll find out how much of the deflationary pressures trickled down to consumer prices.

Today's Economic Reports

Oil traders appeared to lock in their gains on Friday, causing crude to fall $1.70 a barrel. The 3.5-percent decline left oil at $46.28 on the New York Mercantile Exchange. However, it was a very bullish week for black gold with it climbing 13.4% over the five sessions.

The Dow Jones Industrial Average was able to reverse the early downward trend and finished the session up 64 points at 8,629. The 0.8-percent gain on Friday helped reduce its weekly loss to just 0.1% for the five trading days. It should be an interesting week with the index sitting midway between support and resistance on the chart.

The S&P 500 also climbed 6 points on Friday and finished the week at 879. This gain on the session helped the index move up 0.4% on the week. On the chart, the S&P bounced nicely off its 20-day moving average (light blue line) on Friday. We'll have to wait to see if it can continue this momentum on Monday. We'll also be watching to see how it handles the next resistance barrier at its 50-day moving average (red line).

The Nasdaq Composite opened sharply lower on Friday but then turned higher the rest of the session. The low of the day happened at its 20-day moving average (light blue line) before it rocketed 32 points higher. Its 2.2% advance on the session took the index up to 1,540. That helped the Nasdaq rise 2.1% for the week.

The VIX (Chicago Board Options Exchange Volatility Index) fell nicely on Friday with a 1.50-point drop. This took the fear index down to 54.28 and continued its descent down the chart. We'll be watching to see if this trend can continue into option expiration week.

We were able to go one for two in our fills over the last two sessions of the week. We got filled in our OIH spread on the pullback on Thursday, but couldn't be as fortunate in our RUT call spread. We aren't going to give up just yet. With the VIX still at pretty high levels (historically), we can still get a decent premium this week. Due to this, we are going to once again attempt to get filled in a call spread. However, we are going to leave our strike prices well out of the money and keep our credit relatively high. With this in mind, the only way we are going to get filled is if we get a big rally on Monday. The rest of our spreads are sitting in good shape heading into the final week of the December cycle. We'll continue to monitor them all closely this week, but let's see if we can get one more spread on Monday.

Please Note: This is a Day Order and a Limit Order

RUSSELL 2000 INDEX (RUT)

OPENING 540-550 DECEMBER BEAR CALL SPREAD (10 contracts)

Sell 10 December Calls at 540 strike price

Buy 10 December Calls at 550 strike price

Total Credit 0.45 per contract

Potential Profit $450.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $535.00. For auto traders, we will send in a close-out order if this happens.

CURRENT DECEMBER SPREADS

OIH 60-55 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/25/08 & closed on 12/05/08)

Loss of $124.00 per contract

RUT 350-340 DECEMBER BULL PUT SPREAD (10 Contracts entered on 11/28/08)

Potential profit of $60.00 per contract

Contingent Stop Order set at $355.00

The Russell 2000 index fell slightly below its 20-day moving average (light blue line) on Friday but then bounced sharply. By the end of the session, it was up 17 points at $468.43. This was very good news for our put spread. Heading into the final four trading days in this spread, we are sitting in great shape with well over 100 points of breathing room. We shouldn't have any thing to worry about this week in the RUT.

AAPL 75-70 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/28/08)

Potential profit of $55.00 per contract

Contingent Stop Order set at $77.50

Apple broke through its 50-day moving average (red line) on Thursday and then fell sharply lower on Friday. However, its recovery brought that stock back above it when Apple gained $3.27 and closed at $98.27. While its closing was a very positive finish to the week, the stock still is having trouble with resistance at $100 on the chart. We'll be watching this week to see if the stock can close above this mark. With five sessions left in this spread, we are sitting fine with a cushion of nearly 25 points.

OIH 65-60 DECEMBER BULL PUT SPREAD (15 Contracts entered on 12/11/08)

Potential profit of $45.00 per contract

Contingent Stop Order set at $67.50

We got filled in this spread on Thursday, just as the OIH was getting bombarded with some profit taking. After climbing for three straight sessions, we knew there would be the urge to lock in some gains. This carried through to Friday when the ETF fell sharply along with Market. But its strong afternoon wiped out nearly all of the session's loss. It finished the day down only a mere $0.48 at $76.96. This leaves OIH almost 12 points over our put spread with just one week left until expiration. Let's sit back and see if we can make it to the finish line with our spread position intact.

As always, Trade Happy and Trade Smart

We went one for two today in our new spreads. The drop in the Market helped us get filled in our OIH put spread, but it prevented us from getting into the new RUT call spread. Due to this, we are going to once again attempt to get filled in the RUT spread tomorrow.

Please Note: This is a Day Order and a Limit Order.

RUSSELL 2000 INDEX (RUT)

OPENING 540-550 DECEMBER BEAR CALL SPREAD (10 contracts)

Sell 10 December Calls at 540 strike price

Buy 10 December Calls at 550 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $535.00. For auto traders, we will send in a close-out order if this happens.

Stocks bounced back with another green session. After a rough day of trading on Tuesday, it was green across the board on today's close with stocks recovering a portion of yesterday's losses. Whether it's just a Bear Market rally or a true Santa Claus rally, the result has given traders a slightly positive bias through the end of the year.

On the economic front, it wasn't a very busy day. The Commerce Department reported that wholesalers cut back on their inventories in October by the largest amount since right after 9/11. The data showed a reduction in supplies by 1.1-percent, which was dramatically bigger than the 0.2% that the Street was expecting. Meanwhile, the wholesale level made its largest drop ever when it shed 4.1-percent in October. This brought the inventories-to-sales ratio up to 1.16 for the month. This translates to a month and a half worth of inventories for wholesalers. Considering the current retail climate, this ratio is probably way too high and could signal more production cutbacks coming soon. This is certainly not a good sign for future employment numbers and the economy as a whole.

Also on the day, the federal government announced another record budget deficit for the month of November. With tax revenues declining and the financial rescue jumping by leaps and bounds, last month's deficit hit $164.4 billion. The only good news is that the amount was actually not as bad as the $171.0 billion that economists had forecasted. However, this puts the nation on pace to reach a $1 trillion deficit for the current budget year. If so, this would double last year's old record. It would also bring the deficit up to 6.7% of gross domestic product.

The weekly oil inventory report showed a much smaller build in supplies than what analysts had forecasted. The government data showed a build of 392,000 barrels last week, which was less than the 2.7 million barrels that traders were expecting. However, the current levels are much better than last year's inventories that were nearly 8% lower than current supplies. At the same time, U.S. demand for gasoline continued to show a weakening trend. However, the big variable still out there for the price of oil is the upcoming OPEC meeting next week. The cartel controls around 40-percent of the world's oil supply and is expected to cut production at its next meeting.

On the day, oil moved up $1.45 on the New York Mercantile Exchange. The 3.5-percent gain took crude up to $43.52 a barrel.

Today's Economic Reports

Perhaps the most interesting talk on the Street today is about yesterday's Treasury auction. It was quite shocking when the $30 billion worth of four-week notes sold for a yield of 0%. Not only that, but the government could have sold billions more than that. Even more disturbing, the previously issued four-week notes were trading with a negative yield. This means that investors bought them with the reality of actually taking a .1% to .2% loss in the transaction. The reason anyone would take a sure loss was simply because they wanted safety and were willing to actually pay for that security. We're not sure if this has ever happened before?

Once again, there was plenty of attention on Washington D.C. today as the Congress was negotiating a bailout for the Big Three automakers. Reports are showing the current legislation to provide $15 billion in short-term funds for the companies.

The Dow Jones Industrial Average bounced back with a nice 70-point gain on Wednesday. The 0.8-percent advance took the index up to 8,761. For the third straight session, the Dow has run into tough resistance from its 50-day moving average. This is the key barrier that will tell us if there's more room to the upside or whether it's going to reverse and head back down the chart.

The S&P 500 also climbed 1.2-percent on the day and finished at 899. The 10-point move in the index helped erase some of the sting from yesterday's big sell-off. It also takes the S&P back to within striking distance of its 50-day moving average (red line) on the chart. Similar to the Dow, this is the line that we'll be watching closely the rest of the week.

The Nasdaq Composite opened the session significantly higher today and then was able to hold on to a 1.2-percent gain. However, the index traded in another wide range today before closing up 18 points at 1,565. On the chart, the Nasdaq has a resistance line at 1,600 and then its 50-day moving average (red line) at 1,621. These are the two levels we'll be monitoring over the next two sessions.

The VIX (Chicago Board Options Exchange Volatility Index) continued to move lower this week after taking out its 50-day moving average (red line). The best news is that for the first time since early September, the VIX has stayed below this moving average for three straight sessions. If this can continue, the Market is probably headed higher.

This week's action has been very good for our remaining put spreads. The only problem is that it still hasn't taken the sting out of our OIH spread last week. That's especially true when the ETF has continued higher this week. With our current positions sitting very secure, we want to add a few new positions tomorrow to see if we can make up for that OIH position.

The first new spread tomorrow is going back to the Oil Services HOLDRs (OIH). With the ETF appearing to bottom last week, we feel that this is a very good opportunity to pick up some good premium for the little remaining time left in this cycle. With OPEC meeting next week to cut production, we don't see any significant selling pressure bringing this one down in the next week and a half.

The second new spread for tomorrow is moving forward with a call spread on the RUSSELL 2000 INDEX (RUT). The index has gained some upside momentum over the last two weeks, but is now facing some difficult resistance barriers on the chart. With just over a week left in this position, we feel very good about this one expiring worthless.

Oil Services HOLDRs (OIH)

OPENING 65-60 DECEMBER BULL PUT SPREAD (15 contracts)

Sell 15 December Puts at 65 strike price

Buy 15 December Puts at 60 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $67.50. For auto traders, we will send in a close-out order if this happens.

RUSSELL 2000 INDEX (RUT)

OPENING 540-550 DECEMBER BEAR CALL SPREAD (10 contracts)

Sell 10 December Calls at 540 strike price

Buy 10 December Calls at 550 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $535.00. For auto traders, we will send in a close-out order if this happens.

OIH DAILY CHART

CURRENT DECEMBER SPREADS

OIH 60-55 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/25/08 & closed on 12/05/08)

Loss of $124.00 per contract

RUT 350-340 DECEMBER BULL PUT SPREAD (10 Contracts entered on 11/28/08)

Potential profit of $60.00 per contract

Contingent Stop Order set at $355.00

The Russell 2000 index gapped higher on Monday's open and has traded sideways since then. In today's trading, the RUT gained 10.69 points and closed at $476.40. This leaves us with a very comfortable cushion of 126 points in our put spread with not a lot of time left in this trade. The index is likely to face some difficult resistance from its 50-day moving average (red line) on the chart. This barrier is currently sitting near the 500 point level on the chart. If it can break through this, it could be another leg up on the chart.

AAPL 75-70 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/28/08)

Potential profit of $55.00 per contract

Contingent Stop Order set at $77.50

Apple broke through its 50-day moving average (red line) on Monday and has held above it since then. It pulled back slightly today when it lost $1.85, but it held up fairly well and closed at $98.21. This leaves the stock well over 20 points above our put spread with just a week and a half remaining in this cycle. With some strong upside momentum in this stock and plenty of support levels above our put spread, we shouldn't have much to worry about in this one.

As always, Trade Happy and Trade Smart

The Street once again shook-off dismal economic data and surged higher. The economic data continued to be troubling, but stocks have been able to overcome the weak data and climbed higher on Friday. Hopefully this trend can continue because we're sure that the data isn't going to get better anytime soon.

Heading into Friday's non-farm payroll report, the Street already expected a troubling loss of 305,000 jobs in November. But that was nothing compared to the 533,000 job loss that was reported by the Labor Department, marking the largest one-month drop since 1974. However, if you look at the month on a percentage loss, it was only the 41st worst month on history. Not quite as horrendous as the headlines read. This is because the workforce is much larger than in the past. But there was no way to sugar coat the government's revision of the September and October reports downward, showing a larger loss than previously reported. With the new revisions, the U.S. has now shed over 1.2 million jobs since September. The chart below shows just how dramatic the job loss has been the last three months.

Graphic from Briefing.com

At the same time, the unemployment rate ticked up to a 15-year high of 6.7-percent in November. This was up from the 6.5-percent number in October, but was actually slightly better than the 6.8-percent that the Street was expecting. The trend has certainly been higher since last summer, but the chart below shows that we're still below the rates in the early 1990s. Perhaps this was the silver-lining on Friday.

Graphic from Briefing.com

The long-range outlook on unemployment is much worse than Friday's number. Economists are expecting it to hit at least 8-percent early in 2009. However, with a $700 billion plus stimulus package being anticipated, it should help to counteract the rising unemployment trend.

The troubling jobs data on Friday probably increased the pressure on Congress to keep the automakers out of bankruptcy and remove the risk of massive job losses by the Big Three. The executives spent the second straight day on Capitol Hill attempting to convince lawmakers to supply the beleaguered companies a bridge loan. While nothing is a done deal just yet, it's hard for us to see Congress not throwing the Big Three a lifeline.

Possibly the biggest news last week revolved around a possible plan that the Treasury Department was working on to aid the housing market. According to reports, the Treasury is drafting a plan to offer 4.5% fixed-rate mortgages through Freddie and Fannie in an attempt to stabilize home prices and limit additional foreclosures.

Today's Economic Reports

Oil continued to drift lower on Friday when it fell to a four year low at $2.86 a barrel on the New York Mercantile Exchange. Of course, that was terrible news for our OIH spread, which we'll discuss later.

It was the typical wild session on Friday with stocks heading lower at the open. But the recovery sent the index up 259 points by the time the closing bell rang. The 3.1-percent gain left the Dow sitting at 8,635. While it was nice to have such a positive finish to the week, the index still lost 2.2-percent over the last five sessions. On the chart, the index seems very content with the support line that it bounced off again on Friday. We'll probably see what it thinks of its nearest resistance line on Monday. A break through this and its 50-day moving average (red line) could be the precursor to a Santa Claus Rally.

The S&P 500 also surged higher on Friday when it gained 30 points and closed at 876. Similar to the Dow, the S&P also bounced numerous times off the same support level last week. The next resistance level that we're watching is from the previous week's high of 900. We should find out how much upward momentum the index has on Monday's session.

The Nasdaq Composite climbed 63 points on Friday's session and finished the week at 1,509. While it still lost ground on the week, the index was able to break through its 20-day moving average (light blue line) and is heading back towards the high from the previous week on the chart. If it can make it through this barrier, it could be a nice finish for December.

The VIX (Chicago Board Options Exchange Volatility Index) once again retreated to its 50-day moving average (red line) on Friday when it shed 3.71 points. However, it has fallen to this barrier before but simply bounced back above it. With the VIX sitting at 59.93, it's still a very volatile trading environment.

Friday's early tumble caused us a lot of pain in our OIH spread. The ETF fell below our trigger price, which caused us to close out our spread early. Then we had to watch it bounce hard and actually finish the session with a decent gain. It doesn't get any more painful than that. While it's difficult to take a loss when that happens, it was the prudent thing to do. OIH was falling hard and by exiting above our strike prices, we were able to keep the loss small.

If we can add another spread or two this cycle, we still can come away with a profitable month. But we're definitely not going to rush into a new trade with having a great deal of confidence that it's going to be successful. For now, we're going to sit tight for Monday and see if we can get some carry-through from Friday's rally. If so, we'll probably have a new spread at the first part of this week.

CURRENT DECEMBER SPREADS

OIH 60-55 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/25/08 & closed on 12/05/08)

Loss of $124.00 per contract

RUT 350-340 DECEMBER BULL PUT SPREAD (10 Contracts entered on 11/28/08)

Potential profit of $60.00 per contract

Contingent Stop Order set at $355.00

The Russell 2000 index had a very nice afternoon of trading on Friday. The index finished the session up 21.56 points at $461.09. This move took the RUT through its 20-day moving average (light blue line) and has it closing in on another resistance level on the chart. If it can break through this level, it's likely headed to its 50-day moving average (red line). If it starts to slowdown at these levels, we're likely to come back with a call spread on the RUT. For now, our put spread is sitting in great shape with over a 100-point cushion.

AAPL 75-70 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/28/08)

Potential profit of $55.00 per contract

Contingent Stop Order set at $77.50

Apple held up fairly strong last week and finished with a gain of $2.59 on Friday. The 2.83% advance left the stock sitting at $94.00 at the closing bell. According to news reports, Apple turned in a very good Cyber Monday last week when it drew 3.7 million visitors to its website. This put the company in the top five for retailers on the typical busiest online shopping day of the year. We'll have to wait until tomorrow to see if the stock can continue to move up the chart. For now, we're sitting very well with nearly 20 points of breathing room in this position.

As always, Trade Happy and Trade Smart

Today's sell-off has dropped OIH to our exit trigger price. Due to this we are going to close out our current put spread.

Please Note: This only applies to those members in this position.

Oil Services HOLDRs (OIH)

CLOSING 60-55 DECEMBER BULL PUT SPREAD (15 contracts)

Buy 15 December Puts at 60 strike price (puts we previously sole)

Sell 15 December Puts at 55 strike price (puts we previously bought)

We suggest using a Market Order to get filled quickly.

After the bloodletting on Monday, stocks bounced back with two straight winning sessions. While the finish was firmly in the green, the session was full of twists and turns with the indices moving in more wild trading ranges. The positive aspect to today's session is that stocks once again overcame plenty of dismal economic data and finished the day near their highs. This is starting to become a trend, which is a good sign for the bulls.

The job losses continued to mount last month according to this morning's ADP report. It showed that private employers cut 250,000 jobs in October. That was worse than the 205,000-loss that the Street was expecting and is a bad sign heading into Friday's more important non-farm payroll report. Analysts are predicting a loss of 305,000 jobs in Friday's report.

There was more disappointing news in the service sector this morning when the ISM number came in worse than expected. The street was looking for a drop in non-manufacturing activity to 42. But the actual number came in at 37.3 in November, down from 44.4 in October. Any reading below 50 signals a contraction while above it shows expansion. The ISM report is a national survey of purchasing managers which covers new orders, employment, inventories, supplier delivery times, prices, backlog orders, export orders, and import orders.

Graphic from Briefing.com

However, there was some actual good news this morning from the Labor Department. It announced that non-farm business productivity hit an annual rate of 1.3% in the third quarter, which was an unexpected upward revision from the original data that showed an increase of 1.1%.

There was a surprising drawdown in crude supplies this morning in the EIA inventory report. Instead of a 1.4-million barrel increase in inventories last week, there was a 400,000 barrel drawdown in supplies. However, the slight decline comes a week after the massive 7.3 million barrel increase was reported. This is probably why today's report didn't have much of an impact. At the same time, gasoline supplies also fell 1.5 million barrels last week. However, demand continues to remain weak, down 3.2-percent from last year. On the session, oil prices nearly hit a three year low today, but finished the session down $0.17 at $46.79 a barrel on the New York Mercantile Exchange.

The news this afternoon was the release of the Fed's beige book, which pretty much just stated the obvious. It stated that overall economic activity has weakened since its last report. It also suggested that the economy was falling deeper into a recession with falling sales and weakening job markets. It also mentioned tighter loan standards being used by banks while lending has also contracted. The Fed also noticed weak housing markets and contraction in manufacturing.

Of course, just two days ago the National Bureau of Economic Research finally declared that the U.S. entered a recession in December of 2007. The NBER is a private, non-profit research organization and is touted as the purveyor of official word on whether a recession has begun. Keep in mind that the third-quarter gross domestic product declined at a 0.5% annual rate.

Late in the trading day, there was a Wall Street Journal report that the Treasury Department might seek to bring down mortgage rates as a way to improve the housing market. The report said that the government is considering driving rates down to as lows as 4.5%, which is a full point below where 30-year mortgages are currently being offered.

Today's Economic Reports

It was another wild trading range for the Dow Jones Industrial Average today when it whipsawed in a nearly 400-point range. A late day surge took the index up 172 points at the closing bell, leaving the Dow at 8,591. This took the Dow above its 20-day moving average (light blue line) but leaves the index midway between its nearest support and resistance levels on the chart. Until it breaks through either of these barriers, we have more of a range-bound sentiment.

The S&P 500 picked up steam at the end of the session, which took the index up 21 points to 870. The 2.58% advance takes the index up to its 20-day moving average but also leaves the index midway between its nearest support and resistances lines. Similar to the Dow, we'll keep a neutral bias until it proves it can break through either of these levels.

The Nasdaq Composite added to yesterday's gain with a 42-point surge today. The 2.94-percent rally takes the index up to 1,492, but leaves it just shy of its 20-day moving average on the chart. Just like the other two indexes, we are waiting for the index to either take out its nearest support or resistance lines before we can get a good feel for its direction.

The VIX (Chicago Board Options Exchange Volatility Index) fell back to its 50-day moving average (red line) with today's 2.26-point drop. This leaves the fear index sitting at 60.72. If it can once again break below this moving average, it increases the odds that it will continue falling.

It's been anything but uneventful this week. After Monday's wicked selling, we started to get concerned about our put spreads. But then we had two back-to-back green sessions that have given us back some of our breathing room in our spreads. However, as we pointed out on the daily charts, the indexes are currently sitting in the middle of a trading range and until they break in either direction, we are maintaining more of a neutral bias. While the overall trend is still bearish, the fact that the Market has been shrugging off plenty of negative news has us concerned that we might be moving higher. This is what is preventing us from making our current spreads into iron condors and has us holding off on adding any additional spreads for December just yet. For now, let's take a look at all of our spreads in detail.

CURRENT DECEMBER SPREADS

OIH 60-55 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/25/08)

Potential profit of $70.00 per contract

Contingent Stop Order set at $62.50

OIH took a beating yesterday with the price of crude tumbling. It appeared as if the sharp move lower would continue today before an afternoon rebound in OIH. While it still fell $1.18 on the day, it closed well off its low at $72.57. The bullish aspect is that the low came very close to an old support level on the chart. If it can hold above this support line, we should be in good shape. After today's action, we are left with a cushion of $7.57 in this spread.

RUT 350-340 DECEMBER BULL PUT SPREAD (10 Contracts entered on 11/28/08)

Potential profit of $60.00 per contract

Contingent Stop Order set at $355.00

The Russell 2000 index continued yesterday's rally with another $11.94 move to the upside. The 2.70% advance takes the RUT up to $453.76 but leaves the index just short of its 20-day moving average (light blue line) on the chart. Similar to the major indices, the RUT is also sitting in the middle of its current trading range. We'll continue to watch this index to see which way it will break. Currently, we're sitting just fine in this one with the RUT over 100 points above our put spread.

AAPL 75-70 DECEMBER BULL PUT SPREAD (15 Contracts entered on 11/28/08)

Potential profit of $55.00 per contract

Contingent Stop Order set at $77.50

Apple started to gain some traction to the upside today when it surged $3.43 and closed at $95.90. This move broke right through last week's high on the chart and has the stock headed towards its 50-day moving average (red line) on the chart. This is likely to be the next major resistance level for the stock. If it can break through this line, it will have plenty of bullish momentum on its side. We seem to be fine in this position with Apple sitting over 20 points above our "short" strike price.

As always, Trade Happy and Trade Smart