Stocks falter on Friday, but finish the week with spectacular gains. It was the third week in a row that the indices moved higher, breathing a sense of optimism throughout the Street. With the economic data showing signs of life, the Market has continued the Bear Market Rally. While we're not ready to replace the "Bear" with a "Bull" just yet, we are enjoying the ride to the upside. After all, it's something that we haven't experienced in quite some time.

 

There was mixed economic data Friday morning when consumer spending increased, but income actually dropped in February. On the spending front, it was the largest increase in over three years in February. Consumer spending climbed 0.2% last month, marking the second straight month of increases. The news from the Commerce Department was taken as a positive sign that perhaps there will be a pickup in retail activity as consumers start to feel better about the economy. Meanwhile, the huge number of job losses and layoffs were probably to blame for the decline in February's personal income. It fell by 0.2% for the fourth time in the last five months.

 

Graphic from Briefing.com

 

While the spending news was certainly positive, there was still a high level of saving last month. According to the Commerce Department, personal saving was 4.2% of disposable income in February. This comes after January's reading of 4.4%, which puts the last two months near a level that we haven't seen in a decade. This has economists concerned because this cuts into consumer spending, thus keeping the pressure up on the troubled economy. But the fact that we saw a nice jump in spending last month while the savings level was still very high is definitely an encouraging sign because the American economy is very dependant on consumer spending.

 

There was a bit of bright news mid-morning on Friday when the Reuters/University of Michigan surveys of consumers reported another increase on sentiment for this month. The final index increased to 57.3 for March, up from February's 56.3. This was also above consensus and continues its new-found upward momentum.

 

Friday's Economic Reports

 

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Mar 27	08:30	Personal Income	Feb	-0.2%	-0.1%	0.2%	0.4%
Mar 27	08:30	Personal Spending	Feb	0.2%	0.2%	1.0%	0.6%
Mar 27	09:55	Michigan Sentiment-Rev	Mar	57.3	56.8	56.6	--

 

Oil continued to pull-back on Friday when it dropped $1.96 a barrel. This 3.6% tumble wiped out most of its gain over the last five sessions. However, it still managed to close above $50 a barrel at $52.38 on the New York Mercantile Exchange. This is quite a feat considering the build in supplies last week as well as the rising dollar.

 

Speaking of the dollar, it turned in a very solid week. It advanced over 2% against the euro, stopping a two week slide for the greenback. This was its strongest week since late January. On Friday, it moved up 1.64% against the euro, which was also its strongest one-day rally since January 20.

 

The Dow Jones Industrial Average made it three weeks in a row with its 6.8% move to the upside last week. This gives the large-cap index its strongest rally since May of last year and is on pace to have its best month since October of 2002. However, the Dow ran into some trouble on Friday when it tumbled 148 points after bumping up against a decent resistance level on the chart. This was an old support level for the index back in January and February and is now turning into an area for profit taking. With the index finishing the week at 7,776, we'll have to wait until Monday to see if it can break through this resistance just like it has through plenty of others over the past three weeks. The good news on the technical front is that the Dow is now firmly above its 50-day moving average (red line) on the chart. It's very important that it stays above it this week. A break back below it could signal another big sell-off.  

 

 

The S&P 500 also was hit with some selling on Friday when the index lost 16 points and finished the day at 815. However, it still managed to gain 6.17%, or 47 points over the past five sessions. This also puts the S&P up three weeks in a row and marks its biggest winning streak since August of 2008. Similar to the Dow, the S&P's move above its 50-day moving average (red line) was a very bullish sign. Now, the key is for the index to stay above this level.

 

 

 

The Nasdaq also made it three weeks in a row for the tech-laden index. Although it shed 41 points on Friday, it finished the week up 87 points, or 6.03%. This left the Nasdaq at 1,545 and has the index on its longest winning streak since August of last year. On the chart, this index remains stronger than the other two, but is facing resistance in the area of 1,600. If it can make it through this barrier, it should have another 70 or 75 points of room to the upside.     

 

 

The VIX (Chicago Board Options Exchange Volatility Index) made a slight rebound on Friday when it moved up 0.68 points and finished the week at 41.04. It just can't seem to fall below the 40-point barrier on the chart. However, if we get another strong week in the Market, this should take the VIX below this strong support level on the chart. Let's see how it plays out this week.

 

 

While we were happy to see the rally continue last week, we just wish we could have gotten filled in the rest of our spreads beforehand. We were optimistic on Friday's pullback that we might get an entry into two more of our spreads, but the drop wasn't big enough for our limit orders. Remember, it's best to be picky on the way into the spreads. It's a whole different story on the way out.

 

For Monday, we're going to continue to use patience and use the volatility for our fills. However, we are going to have to adjust the strikes on POT and the credit on MNX and then send them back to the brokers for tomorrow morning. The rest of the spreads that we have going for April seem to be sitting in good shape for now.

 

Please Note: These are Limit Orders and Day Orders.

 

NEW TRADE ALERT (2)

 

MINI-NASDAQ 100 INDEX (MNX)

OPENING 110-105 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 110 strike price

Buy 15 April Puts at 105 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 $112.50. For auto traders, we will send in a close-out order if this happens.

 

Potash Corp. of Saskatchewan, Inc. (POT)

OPENING 70-65 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 70 strike price

Buy 15 April Puts at 65 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $72.50. For auto traders, we will send in a close-out order if this happens.

 

MNX DAILY CHART

 

POT DAILY CHART

 

CURRENT APRIL SPREADS

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
RUT	Bull Put	350-340		15	.60
OIH	Bull Put	70-65		15	.50

POTENTIAL APRIL PROFIT

$1,650.00

 

RUT 350-340 APRIL BULL PUT SPREAD (15 Contracts entered on 03/23/09)

Profit potential of $60.00 per contract

Contingent Stop Order set at $355.50

The RUT took a beating on Friday when it dropped 16.30 points and nearly wiped out the previous session's gain. The 3.66% drubbing took the index down to $429 points, but leaves the small-cap index above its 50-day moving average (red line) on the chart. Keep in mind that the index still posted a solid gain on the week and is currently sitting almost 80 points above our put spread. This gives us plenty of breathing room heading into the final three weeks of the April options cycle.

 

 

OIH 70-65 APRIL BULL PUT SPREAD (15 Contracts entered on 03/23/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $72.50

Friday's pull-back in oil and weakness in the Market certainly took its toll on our OIH spread. The Oil Services HOLDRs shed 3.16 points on Friday and finished the week at $79 even. But with oil still hovering above $50 a barrel and the huge build in supplies having little effect, we still feel very good about this spread. With a safety net of 9 points in this spread, we aren't going to get too concerned about one or two sessions that move against us. Instead, let's sit back and see how things play out at the start of this week.

 

 

 

 

As always, Trade Happy and Trade Smart

 

 

It was another strong day on the Street with stocks racing higher....again. We just wish we would have been filled before they took off. While it would be easy to raise our strike prices, we have the feeling that we're going to get a pull-back sooner or later and want to give ourselves plenty of cushions in these spreads. Let's try to use a little more patience on our entries and send the same trades back in tomorrow and see if our persistence pays off.

 

Please Note: These are Limit Orders and Day Orders.

 

NEW TRADE ALERT (2)

 

MINI-NASDAQ 100 INDEX (MNX)

OPENING 110-105 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 110 strike price

Buy 15 April Puts at 105 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $112.50. For auto traders, we will send in a close-out order if this happens.

 

Potash Corp. of Saskatchewan, Inc. (POT)

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

Sell 15 April Puts at 65 strike price

Buy 15 April 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.

 

 

Once again, stocks shot out of the gate this morning, only to fade in the afternoon before making a late day rally. Strong economic reports were the catalyst behind this morning's bullish start, which was nice to see for a change. However, a flurry of early afternoon selling sent stocks into the red across the board. But it was very good news with the erratic session ending with stocks moving back into the green at the close. As we often say, it's the last hour of trading that matters most and today's finish continues the recent bullish sentiment.

 

Traders received a piece of excellent news for the economy in this morning's report on durable goods. Coming into the release, analysts were expecting a decline of 2.5% for February, but the data showed an actual gain of 3.4% in February. This not only crushed forecasts, it also was a remarkable U-turn from the 7.3% decline reported in January. If transportation equipment was removed from the total, it would be the biggest advance since August 2005 at 3.9%.

 

Graphic from Briefing.com

 

There was also good news on the housing front this morning when new home sales increased for the first time since July. The latest data from the Commerce Department showed an unexpected jump of 4.7% in February, which translated into an annual pace of 337,000. Not only was this much higher than analysts had forecasted, the government also revised January up to 322,000. While the news was definitely a shot in the arm to the Market, keep in mind that February's number was still the second worst number ever recorded. It was also over 40% below February of 2008. Meanwhile, the median home price has continued to slide. It now stands at $209,000, which is nearly 20% below last February's number.

 

Crude levels climbed to its largest stockpile in over 15 years last week according to the latest Energy Information Administration report released this morning. In today's weekly inventory report, oil supplies increased by 3.3 million barrels. The 0.9% gain brought the total U.S. supply up to 356.6 million barrels. This is the country's largest stockpile since 1993 and up almost 16% from a year ago. Today's number was much higher than the 1.4 million barrel increase that analysts had predicted. Oil finished the session down $1.21 at $52.77 a barrel on the New York Mercantile Exchange.

 

Meanwhile, gasoline supplies managed to fall by 1.1 million barrels last week to a current level of 214.6 million barrels. The 0.5% reduction puts gasoline supplies 5% below last year's level. At the same time, demand for gasoline is up 0.7% over last year, which will keep the upward pressure on the price at the pump.

 

Today's Economic Reports

 

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Mar 25	08:30	Durable Goods Orders	Feb	3.4%	-2.5%	-5.2%	-7.3%
Mar 25	08:30	Durables, Ex-Transportation	Feb	3.9%	-2.0%	-5.9%	-2.5%
Mar 25	10:00	New Home Sales	Feb	337K	300K	322K	309K
Mar 25	10:30	Crude Inventories	03/20	+3300K	NA	+1942K	--

 

There was plenty of concern this morning on the Street after a very weak five-year Treasury note auction. Evidently, the number of foreign investors was down dramatically and left many speculating that the government's attempt to lower interest rates might fail. This comes after the U.K.'s auction that failed for the first time since 1995 as investors have become very apprehensive of buying government debt.

 

The Treasury Secretary sent the dollar on a wild ride today with some remarks at the Council on Foreign Relations this morning. He was asked about proposals from the People's Bank of China Governor who called for a new international reserve currency. Geithner responded by saying, "as I understand his proposal, it's a proposal designed to increase the use of the IMF's special drawing rights. And we're actually quite open to that." This comment from the Treasury Secretary sent the dollar down 1.3% in less than ten minutes. The Secretary later back-stepped in a CNBC interview and said that he thinks the dollar remains the dominant reserve currency. As we mentioned on Sunday, whenever Geithner talks, there's always a lot of volatility.

 

The Dow Jones Industrial Average went on a wild ride today, but finished the session up 89 points at 7,749. The 1.17% gain helped the index stay above its 50-day moving average (red line) on the chart and helped the Dow make up for some of yesterday's losses. We'll be watching to see if the index can hold above its 50-day moving average the rest of the week. Any break below this average would be a bad sign for the Dow and would likely mean a significant drop on the chart.

 

 

The S&P 500 also flirted with its 50-day moving average (red line) today before it was able to rebound and finish the day up 7 points at 813. At the same time, the S&P appears to be struggling with resistance near 820 on the chart. With the index vacillating between these two levels, a break below or above will likely be a fairly strong move. Let's keep a close eye on both these marks the rest of the week.  

 

 

 

The Nasdaq also traded in a wild session today before finishing the day up 12 points at 1,528. Similar to the other two indices, the tech-heavy Nasdaq also has run up against a strong resistance barrier the last three session near 1,550 on the chart. If the index can make it through this level, we could see another nice move to the upside.    

 

 

The VIX (Chicago Board Options Exchange Volatility Index) has pulled back a bit this week due to the massive rally on Monday. While it was certainly nice to see, we were a bit surprised by the small move to the downside. With such a strong move across the board, we would have expected the VIX to fall much harder. This gives us a bit of caution heading forward. With that said, the VIX did fall 0.68 points in today's session and closed at 42.25.

 

 

We've tried to get into the MNX spread over the last three sessions with no luck. But the two spreads that we did get filled in, RUT & OIH, seem to be doing just fine. With the indices remaining up after the terrific move to the upside on Monday, our stance of staying on the put side appears to be on the right track. While we're not against adding call spreads down the road, right now, everything seems to be pointing to the put side. With that in mind, we're going to add a couple spreads tomorrow morning.

 

We are going to start by going back to the MNX put spread, but raising the strike prices one level. We tried not to over the last three sessions, but we're not even getting close. We still feel that this is a very conservative trade, by going up one strike. But we're going to need to keep the credit fairly low to have a chance to get filled. We don't mind that trade-off in this type of environment.

 

Our next new spread is going back to Potash Corp. of Saskatchewan, Inc. (POT). We've stayed away from this one for a while as the fertilizers took it on the chin over the past six months. As many of you know, we've liked this company for a long time now and we are finally feeling like the water is warm enough for us to get back into fertilizers. We like that POT has a lot of its pricing locked in at higher prices, which should help it maintain its nice profit margins. We also believe that it's a good play for a falling dollar, which we got a taste of today. Although we are very confident in this stock, we are placing our put spread at very safe levels. We are entering the strike prices at the low from March, which is almost 20 points below its closing price today. We also have plenty of strong support levels above our put spread along with a couple strong moving averages that are starting to move back in the right direction again. But like our MNX spread, we're going to take a smaller credit in as a trade-off for safety. This should help us all sleep very well at night.

 

Please Note: These are Limit Orders and Day Orders.

 

NEW TRADE ALERT (2)

 

MINI-NASDAQ 100 INDEX (MNX)

OPENING 110-105 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 110 strike price

Buy 15 April Puts at 105 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $112.50. For auto traders, we will send in a close-out order if this happens.

 

Potash Corp. of Saskatchewan, Inc. (POT)

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

Sell 15 April Puts at 65 strike price

Buy 15 April 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.

 

MNX DAILY CHART

 

POT DAILY CHART

 

 

CURRENT APRIL SPREADS

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
RUT	Bull Put	350-340		15	.60
OIH	Bull Put	70-65		15	.50

POTENTIAL APRIL PROFIT

$1,650.00

 

RUT 350-340 APRIL BULL PUT SPREAD (15 Contracts entered on 03/23/09)

Profit potential of $60.00 per contract

Contingent Stop Order set at $355.50

The RUT has spent the last two session flirting with its 50-day moving average (red line), but was able to finish today's session above it. The small-cap index moved up 9.74 points today and closed at $426.52. We really want to see the RUT hold above this mark over the next two sessions. The longer it can hold above it, the stronger this support will become. On the upside, the index appears to have run into a decent support level from an old support line back in January and February. Similar to the major indices, we'll be watching to see which way the RUT is able to move over the next two sessions. A break through the resistance mark could be another good move to the upside while a break below the 50-day could signal a sizable pull-back. However, with a 75-point cushion in this spread, we're sitting in decent shape for now.

 

 

OIH 70-65 APRIL BULL PUT SPREAD (15 Contracts entered on 03/23/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $72.50

OIH certainly traded in a huge range today, but it was good to see it pare most of its loss by the closing bell. However, it still lost $0.86 on the day, settling at $82.62. The bearish oil inventory report definitely didn't help OIH. But the fact that it was able to fight its way back was a very good sign for our put spread. After today's session, we are sitting comfortably with over 12 points of breathing room in this spread.

 

 

 

 

As always, Trade Happy and Trade Smart

 

We went two for three today on our fills. Heading into today, we knew that it was going to take a big pull-back in order to get filled in MNX. Unfortunately, today's drop wasn't quite enough for our MNX fill. For tomorrow, we're going to leave the order exactly the same and see if we can get the volatility to work in our favor.

 

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

 

NEW TRADE ALERT (1)

 

MINI-NASDAQ 100 INDEX (MNX)

OPENING 105-100 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 105 strike price

Buy 15 April Puts at 100 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 $107.50. For auto traders, we will send in a close-out order if this happens.

 

MNX DAILY CHART

 

 

 

 

As always, Trade Happy and Trade Smart

 

Stocks took off like a rocket this morning, leaving our spreads in the dust. Due to this, we are making adjustments to yesterday's alert, then sending them back to the auto trade brokers for tomorrow morning. With the indices breaking through some very serious resistance levels in today's action, it confirms that we definitely want to be on the put side this cycle. However, we still want to be conservative with our positions. Once again, let's let them work as day orders and see if we can get a little pull back tomorrow that will help us get filled.  

 

Please Note: These are Limit Orders and Day Orders.

 

NEW TRADE ALERT (3)

 

RUSSELL 2000 INDEX (RUT)

OPENING 350-340 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 350 strike price

Buy 15 April Puts at 340 strike price

Total Credit 0.60 per contract

Potential Profit $900.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $355.00. For auto traders, we will send in a close-out order if this happens.

 

MINI-NASDAQ 100 INDEX (MNX)

OPENING 105-100 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 105 strike price

Buy 15 April Puts at 100 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 $107.50. For auto traders, we will send in a close-out order if this happens.

 

Oil Services HOLDRs (OIH)

OPENING 70-65 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 70 strike price

Buy 15 April Puts at 65 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $72.50. For auto traders, we will send in a close-out order if this happens.

 

RUT DAILY CHART

 

MNX DAILY CHART

 

OIH DAILY CHART

 

 

 

As always, Trade Happy and Trade Smart

 

Stocks took a breather on Friday, but it didn't stop us from another great Payday! There's nothing better than an uneventful session on expiration and that's exactly what we got on Friday. Bank stocks led the Market higher most of the week, but they were hit with some selling on the final session. It certainly didn't help this sector with politicians in Washington D.C. ratcheting up the heat on companies receiving bailout funds. Despite the selling on Friday, the indices were still able to make it winning weeks back to back.

 

The banking sector also took some heat from the chairman of the FDIC when Sheila Bair talked about placing a special levy on banks in order to help replenish its deposit insurance fund. Bair said this will be necessary because she expects the agency to have to payout over $65 billion in the next five years because of more bank failures. This kind of talk only hurts trading sentiment, and that's what happened on Friday.

   

Last week's move by the Federal Reserve spelled trouble for the dollar. It fell the hardest in nearly 25 years against the six major currencies. With the Fed purchasing Treasuries, some are saying that the government is essentially debasing the dollar. While the effects of this move might not be seen immediately, it certainly sets up for a future of high inflation. Of course, it's no secret that the government is attempting to re-inflate its way out of the current economic turmoil. Once this is for sure, it will be very interesting to see how they deal with this issue after the economy shows signs of improvement.

 

While the dollar's plunge last week was historic, the greenback was able to gain against the euro. Traders are speculating that European governments will need to follow our lead of quantitative easing. This hurt the price of crude on Friday, which fell $0.55 on the final session of the week. It settled at $51.06 a barrel on the New York Mercantile Exchange. Despite this slight pullback, oil finished the week up 10% over the last five sessions. For the year, it's not up over 14%.

 

Friday's Economic Reports

 

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
		None.

 

The big news this weekend is over the long-awaited Treasury plan regarding banks' toxic assets. According to numerous reports, the Treasury Secretary Tim Geithner is set to announce his plan regarding public-private partnerships on Monday morning. The Street has been anxiously awaiting the details of Geithner's plan, but many remain very skeptical of the Secretary's ability to get at the root issue in the banking system.

 

According to various leaks from the department, the plan will use taxpayer funds to help seed partnerships with private firms to buy up assets backed by mortgages and other loans. At the same time, the FDIC will set up investment partnerships and lend those partnerships about 85% of the money needed to buy toxic assets. Treasury will then hire several investment firms to raise private funds, and also work with the Federal Reserve to expand lending.

 

The Treasury would be hoping to accomplish two important goals. One, they want to attract private capital back into the equation. The second goal would be to somehow be able to price these risky, illiquid securities. This has been the trillion-dollar problem that plagued the last Treasury Secretary, which is why many feel that Paulson shied away from such a plan. We'll take a wait and see approach. But it is always a sure bet that when Geithner talks, it'll probably be a volatile session.

 

After starting the week strong, the Dow Jones Industrial Average ran out of steam on Thursday and then gave more back on Friday. The index lost 122 points on the final session of the week and closed at 7,278. The Dow appeared to run into resistance on the chart below the 7,600-point area. If the index is able to find some strength this week, we'll be watching to see if it can make it back to this barrier and possibly move above it.

 

 

The S&P 500 also ran into some tough resistance on Thursday when it bumped up against its 50-day moving average (red line) on the chart. If we look back to early February and late January, this line has been tough resistance for the S&P. On Friday, it lost 2% and finished the week at 768 points. This week, we'll be looking to see if it's able to reverse once it hits support near 750.

 

 

 

The Nasdaq made it through its 50-day moving average (red line), but wasn't able to hold above it on Friday. The index lost 26 points on Friday and finished the week at 1,457. For the index, 1,450 has been decent support in the past. It looks like it'll test this level right away on Monday.   

 

 

After falling sharply at the beginning of last week, the VIX (Chicago Board Options Exchange Volatility Index) started to gain upside momentum on Thursday and Friday. The index moved up 2.21 points on the final session and closed at its 50-day moving average (red line) on Friday. Obviously, we'd like to see it remain below this line. If so, we could see an extension to the rally that we've experienced over the last two weeks. Keep in mind that the VIX hasn't closed below 38 since September. To compare its current level with historical numbers, the VIX averaged 23 points in the first eight months of 2008 and only 17 points during all of 2007.

 

 

 

Thanks to the rally starting two weeks ago, we were able to coast through expiration week with ease. Besides the stress-free week we experienced last week, it was also nice to see a profit total this month that came in over 12% for March. While the Market isn't looking like a year ago, our profit total is. We've talked a lot over the last five months about some of the adjustments that we've made in our trading strategy. With five consecutive months of being profitable, we'd have to say that the changes seem to be working pretty well. Let's take a look at the breakdown for the month of March.

 

EXPIRED/CLOSED MARCH SPREADS

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
RUT	Bull Put	330-320		15	.85
OIH	Bull Put	55-50		15	.40
GOOG	Bull Put	280-270		10	.65
MNX	Bull Put	100-95		15	.45
PCLN	Bull Put	70-65		15	.45

MARCH PROFIT

$3,875.00

 

RUT 330-320 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $335.00 per contract

OIH 55-50 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $40.00 per contract

GOOG 280-270 MARCH BULL PUT SPREAD (10 Contracts entered on 02/23/09)

Profit of $65.00 per contract

MNX 100-95 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

PCLN 70-65 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

 

While it's nice to sit around and count our money, let's start to figure out how we're going to make it six months in a row. We went into last month with the hypothesis that we were going to experience a sizable Market bounce and that's exactly what happened. But now with the rally exceeding 20%, the question is how much higher can it go?

 

Normally, we'd say it's time for another slight pullback. While we might get this at the beginning of the week, we are concerned about more government intervention on the schedule. We're sure that it's not news to any member that we've never been a fan of the government intervening, but it really doesn't matter what we think. The only thing that matters is how the Market is going to react to it. With today's numbers.....that's the trillion dollar question.

 

Although we remain skeptical, keep in mind that this week's unveiling is finally the announcement that the Street has been waiting for....for months. With that in mind, we don't want to be caught on the bearish side. At the same time, we're not sure how much longer this rally can last. This puts us in more of a neutral bias with the expectations of some sideways action over the next few weeks. But as traders, we need to be able to change our opinion just like the wind. Never forget this. It's when you refuse to change your mind that trading gets difficult.

 

For tomorrow, we're going to get things started by going back to the profit well with a couple new put spreads on some old favorites. We are heading back to the RUSSELL 2000 INDEX (RUT) with another put spread for Monday. Once again, we are going to place our strike prices at very conservative levels and then put our credit where the index needs to pull back a bit in order for us to get filled. This has worked very well for us over the past several months and we think it will work again this month. To show just how safe we are being with this one, we are placing the strikes below our put spread from last month. Let's see if we can get some volatility to work in our favor tomorrow.

 

The second new spread is on another one from last month, MINI-NASDAQ 100 INDEX (MNX). We've had a good run in this index and expect our streak to continue in April. The index has been leading the way higher this year and remains one of the strongest indexes on the chart. Once again, the plan is to come in with a spread at very conservative strike prices and place them below several strong support levels on the chart. The trade-off is giving up a little premium, but this has worked very well for us over the last five months.

 

Our final new spread for April is going back to the oil well with a put spread in Oil Services HOLDRs (OIH). Oil has strengthened quite dramatically over the last week despite OPEC keeping its quota unchanged. Normally, this would have dropped the price of crude. Not to mention the latest weekly oil inventory didn't even dent the price of oil (at least as much as it should have). We've had a lot of success playing this one from the put side and expect that to continue into April with our excellent entry point.

 

Please Note: These are Limit Orders and Day Orders.

 

NEW TRADE ALERT (3)

 

RUSSELL 2000 INDEX (RUT)

OPENING 320-310 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 320 strike price

Buy 15 April Puts at 310 strike price

Total Credit 0.65 per contract

Potential Profit $975.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $325.00. For auto traders, we will send in a close-out order if this happens.

 

MINI-NASDAQ 100 INDEX (MNX)

OPENING 105-100 APRIL BULL PUT SPREAD (15 contracts)

Sell 15 April Puts at 105 strike price

Buy 15 April Puts at 100 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 $107.50. For auto traders, we will send in a close-out order if this happens.

 

Oil Services HOLDRs (OIH)

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

Sell 15 April Puts at 65 strike price

Buy 15 April Puts at 60 strike price

Total Credit 0.60 per contract

Potential Profit $900.00

 

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.

 

RUT DAILY CHART

 

MNX DAILY CHART

 

OIH DAILY CHART

 

 

 

As always, Trade Happy and Trade Smart

 

Stocks fly after Fed decides to buy everything. It wasn't a decision on rates that got the Street excited today. Instead, it was the announcement that the Federal Reserve was going to be drastically expanding its balance sheet that got everything moving north.

 

In this afternoon's release from the FOMC, it outlined several new steps that the committee is planning on undertaking. It said that it will buy up to $300 billion in long-term Treasurys over the next six months. At the same time, it will be increasing its purchasing of mortgage-related securities by $750 billion. While most analysts expected the Fed to say that it might be willing to purchase Treasurys, the fact that they are going ahead and doing it surprised pretty much everyone.

 

The Fed also announced that it was going to expand the range of collateral that it will accept for its new TALF program. On its target for the federal funds rate, the policymakers kept the current range of 0%-25% in place.

 

With its purchasing of long-term Treasurys, the Fed is trying to lower interest rates on corporate debt. At the same time, its buying of mortgage-related securities should lower interest rates across the board. Overall, the concept of freeing up credit remains the same. It's just a new way of helping the economy get there.

 

The latest CPI reading seems to throw the deflation talk out the window. This morning's latest reading on the Consumer Price Index showed that prices have actually gone up for the second month in a row. According to the Labor Department, its measure of inflation climbed 0.4% in February mostly due to the rising gasoline prices. This comes after a 0.3% rise the month before, in January.

 

At the same time, the more closely watched Core CPI (which outstrips food and energy) increased by 0.2% last month. While this was ahead of economists' expectations of 0.1%, the 0.2% reading was the same as reported in January. The graphic below shows how Core CPI has remained relatively flat (yellow line) where CPI (blue line) has fallen to extreme levels over the last several months.

 

Graphic from Briefing.com

 

 

Oil supplies expanded sharply in today's Energy Information Agency report. According to the government data, crude supplies climbed by nearly 2 million barrels, which was in line with most analysts' expectations. While expected, the rise the inventory level was much more than the prior week's report. But today's big surprise was the uptick in gasoline supplies. According to the EIA, gasoline inventories rose by 3.2 million barrels last week. This surprised many analysts, who were expecting a draw down of over 2 million barrels. This should help bring down the price of gas at the pump in coming days.  

 

For the session, oil fell $1.02 and settled at $48.14 a barrel on the New York Mercantile Exchange. Meanwhile, gold took a beating on the session. It dropped $27.70 and closed at $889.10 an ounce.

 

Today's Economic Reports

 

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Mar 18	08:30	Core CPI	Feb	0.2%	0.1%	0.2%	--
Mar 18	08:30	CPI	Feb	0.4%	0.3%	0.3%	--
Mar 18	08:30	Current Account Balance	Q4	-$132.8B	-$137.1B	-$181.3B	-$174.1B
Mar 18	10:30	Crude Inventories	03/13	1942K	2 million	+749K	--
Mar 18	14:15	FOMC Rate Decision			NA	0.00% -0.25%

 

Today's move by the Fed caused bond prices to rally, which means the yields took a nosedive. It also caused problems for the dollar, which sank to a two year low against the euro.

 

In pre-market action, there was word that IBM was in talks to buy Sun Microsystems for more than $6.5 billion in cash. Word of the possible acquisition sent shares of Sun up early in the session while IBM moved lower. The other early morning news involved Coca-Cola's bid to purchase a Chinese juice maker. However, the government of China refused to approve the $2.5 billion foreign acquisition, thus, showing a bit of protectionism. The rejection was actually applauded by analysts who thought it was better for Coca-Cola to maintain a large cash reserve in a time like this.

 

The Dow Jones Industrial Average continued its march up the chart today when it gained another 90 points. The 1.23% advance left the index at 7,486 and moving closer to its 50-day moving average (red line). This mark will likely be the next tough resistance level for the large-cap index.

 

 

The S&P 500 ran into its 50-day moving average (red line) in today's session when it climbed 16 points and closed at 794. We'll continue to monitor how the S&P handles its 50-day moving average over the next couple of sessions. If it's able to break through it, it could be another nice move to the upside. If it isn't able to, then it might be a move lower on the chart.   

 

 

 

The Nasdaq sliced right through its 50-day moving average (red line) in today's trading. The technology-laden index gained 29 points and finished the session at 1,491. The Nasdaq has now run into another resistance level on the chart at 1,500 points. However, if it continues to show such strong internal strength, this probably won't provide too much of a barrier for the index.  

 

 

The VIX (Chicago Board Options Exchange Volatility Index) continued to slide in today's session. It gave up 0.74 points and finished the day down at 40.06 points. If the "fear index" is able to fall below 40, it could be very good news for stocks.

 

 

 

This week's continuation of the rally has put us at ease in all of our spreads. After dealing with plenty of stress a week ago, it's kind of nice being able to put this month to bed several days before expiration. Our focus now turns to getting spreads ready for next month. The first step is evaluating whether this rally still has plenty of legs under it. But we'll have plenty of time to discuss this in the weekend newsletter. For now, let's take a look at how each spread is sitting heading into the final two sessions of the March options cycle.

 

CURRENT MARCH SPREADS

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
RUT	Bull Put	330-320		15	.85
OIH	Bull Put	55-50		15	.40
GOOG	Bull Put	280-270		10	.65
MNX	Bull Put	100-95		15	.45
PCLN	Bull Put	70-65		15	.45

POTENTIAL PROFIT

$3,875.00

 

RUT 330-320 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $85.00 per contract

Contingent Stop Order set at $52.50

The RUT continued to climb in today's session when it gained 14.04 points. The 3.48% gain takes the small-cap index up to $417.63 and within striking distance of its 50-day moving average (red line) near 430 points on the chart. After today's trading, we have a very comfortable cushion of almost 90 points in this spread.

 

 

OIH 55-50 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $40.00 per contract

Contingent Stop Order set at $57.50

OIH traded in a volatile fashion today, but finished up $1.59 at $78.20. Once again, it tested its 50-day moving average (red line) in today's session, but finished well above it. We now have 23 points of breathing room in this spread and shouldn't have anything to worry about over the next two sessions.

 

 

GOOG 280-270 MARCH BULL PUT SPREAD (10 Contracts entered on 02/23/09)

Profit of $65.00 per contract

Contingent Stop Order set at $285.00

Google was one of the laggards in today's session when it tumbled $2.24 and finished the session at $333.10. Despite its decline, the stock did hold above its 50-day moving average (red line) on the chart and remains well above our "short" strike price. With just two trading days left in this spread, we shouldn't have anything to worry about in this position. Google is currently trading 53 points above our put spread.  

 

 

MNX 100-95 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

Contingent Stop Order set at $102.50

The MNX continued to show a great deal of strength today when it gained another 1.24%. That amounted to an advance of $1.48, taking the tech-index up to $120.70. The MNX moved firmly above its 50-day moving average (red line) on the chart for the first time since the beginning of February. With a safety net of 20 points, we shouldn't have anything to worry about in this spread.

 

 

 

PCLN 70-65 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

Contingent Stop Order set at $72.50

It was a wild trading session for Priceline, which traded in a five-point range on Wednesday. Although it lost ground on the session, it did close well off its low. The stock closed down $1.63 at $79.55. While it hasn't been an easy month for this spread, we are only two sessions from this one expiring worthless. With almost 10-points of breathing room in this position, we like our chances of this one making it to the finish line. 

 

 

As always, Trade Happy and Trade Smart

 

Stocks were flying high last week for the first time in quite a while. The indices enjoyed their best weekly performance since just after the November bottom. The only problem is that the March low was certainly a step or two down from last November's low. But with that said, last week's rally was perfect timing for us. At the same time, it brought back a sense of optimism on the Street that we haven't seen for quite a while. Let's see if it's dashed out quickly or is allowed to percolate and then spread like wildfire.

 

There was a slight uptick in consumer confidence in Friday's Reuters/University of Michigan survey of consumer sentiment. While it was slightly better than expected and ahead of last month's reading, the index remains at extremely low levels historically. Friday's release showed a preliminary reading of 56.6 for March, up slightly over expectations of 55.0. It was also fractionally up over February's number of 56.3. The chart below shows just how depressed levels are on an historical basis.

 

Graphic from Briefing.com

 

In other economic news, import prices fell more than expected in February. In the Labor Department's latest reading on import prices, the monthly decline was less than economists had predicted. Last month came in with a mere 0.2% drop compared to expectations of a decline of 0.8% in February. This data suggests that inflation is well contained, which was not very surprising to any of us. However, more importantly, it also showed little evidence of deflation. While it sounds odd, this was very good news because deflation would be very troubling information to economists as rapidly declining values are very hard for economies to cope with.

 

Speaking of falling prices, the U.S. trade deficit narrowed once again in January according to the Commerce Department. This time, it narrowed by $36 billion to nearly 10%, thus, reducing the deficit to its lowest level since 2002. Falling prices and decreased consumer demand led to a record six consecutive months of declines in the deficit.

 

In commodity trading on Friday, gold hit $930 an ounce. Analysts claim that the recent popularity in gold-related ETF's is pushing the price higher. On Friday, it was the third straight session that gold moved higher. Meanwhile, oil dropped $0.78 to $46.25 a barrel ahead of Sunday's big industry meeting.

 

In today's meeting of OPEC (Organization of Petroleum Exporting Countries) countries, the cartel decided against additional cuts in production. It was concerned that increasing the price of oil could harm the global economy that is already under great pressure. Instead, the cartel decided to focus on better compliance of the current production quotas. Keep in mind that oil is up over 20% in the last four weeks. Analysts believe the cartel would like the price of oil to be back to the mid $50 a barrel range.

 

Friday's Economic Reports

 

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Mar 13	08:30	Export Prices ex-ag.	Feb	0.1%	NA	0.1%	0.0%
Mar 13	08:30	Import Prices ex-oil	Feb	-0.6%	NA	-0.8%	--
Mar 13	08:30	Trade Balance	Jan	-$36.0B	-$38.0B	-$39.9B	--
Mar 13	10:00	Michigan Sentiment-Prel	Mar	56.6	55.0	56.3	--

 

Pre-market on Friday, the Street was optimistic after Citigroup made some positive news the night before. In an interview to Reuters, Citigroup's chairman said that the bank did not need any more government aid. This added to the steady stream of positive statements from banks last week, which helped continue the optimism on the Street.

 

The Dow's winning streak hit four days on Friday when it gained another 53 points on Friday, closing at 7,223. The last four sessions of the week helped the large-cap index finish the week up 9.01%. Of course, with the Dow sitting at a level that is one-half its former self, it doesn't take much to put up a big percentage these days. Regardless, we'll take it. The index moved back above its 20-day moving average (light blue line) on the chart for the first time since early February. But it remains well below the more important 50-day moving average (red line). If it can continue moving higher next week, it's likely to run into the next resistance level, now 7,400. That's the level we'll be watching this week. On the downside, let's see if it can hold above 7,000.

 

 

The S&P 500 also put together an amazing run last week when it gained 10.7%. It also turned in its best performance since last November, but like the Dow, its a few rungs down the ladder from that level. On Friday's session, the S&P 500 gained 5 points and finished the day at 756 points. It also moved above its short-term 20-day moving average (light blue line) on the chart. If it can continue marching north, the next barrier appears to be in the neighborhood of 780. Let's keep a close eye on the support and resistance areas this week.   

 

 

 

The Nasdaq slowed down on Friday, but galloped higher for the week. It moved up 10.6% over the last five sessions and remains the strongest on the year. On Friday, the tech-laden index gained 5 points, finishing session at 1,431. The Nasdaq might hit some selling pressure at 1,450 this week, but after this level it shouldn't have any trouble until it runs into its 50-day moving average near 1,480. These are the two important numbers that we'll be watching this week.

 

 

Last week's rally did good things to the VIX (Chicago Board Options Exchange Volatility Index). It took the "fear index" back below its 50-day moving average (red line) and left it at a level that we haven't seen for a month. However, the index was able to move up 1.18 points on Friday and close at 42.36. Let's see if it can continue moving south this week, which would mean a continued rally in the S&P 500.

 

 

 

We finally got the Bear Market Rally that we were looking for last week. Now, the question is whether we'll see it carry into this week or will the sellers return? Either way, we're certainly sitting in much better shape heading into this week than we were going into last week. The four green sessions last week helped all of our positions dramatically. It helped give us plenty of breathing room in most of our spreads heading into expiration week. While we all know how easily things can turn, right now, we're feeling really good about how we're sitting. With that said, let's take a look at all of the positions in detail.

 

CURRENT MARCH SPREADS

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
RUT	Bull Put	330-320		15	.85
OIH	Bull Put	55-50		15	.40
GOOG	Bull Put	280-270		10	.65
MNX	Bull Put	100-95		15	.45
PCLN	Bull Put	70-65		15	.45

POTENTIAL PROFIT

$3,875.00

 

RUT 330-320 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $335.00 per contract

Contingent Stop Order set at $52.50

The RUT capped off a remarkable week on Friday with a gain of $2.97. While that was not so dramatic, the fact that it outperformed the major indices during the last five sessions with a 12% advance was very impressive. The small-cap was able to break through some old resistance levels on the chart and finished the session on Friday above its 20-day moving average (light blue line) for the first time since early February. With the RUT finishing the week at $393.09 the index is now sitting 63 points above our "short" strike price with only four full days of trading left. We should be able to coast to the finish line in this one.

 

 

OIH 55-50 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $40.00 per contract

Contingent Stop Order set at $57.50

It was kind of a crazy week for our OIH spread with the price of oil fluctuating so much. However, the ETF was able to post some solid gains on the week despite losing $1.08 on Friday. The 1.47% decline on the final session left OIH sitting at $72.34. It appeared to be heading back to test its 50-day moving average (red line) earlier in the session, before reversing sharply. We still believe that once it's able to break through this resistance line, OIH is probably headed back to the $85 area. With this in mind, don't be surprised if we come back with another put spread in April. For now, our current position appears to be very safe heading into the final week with almost 20 points separating the ETF and our position. Let's just sit back and enjoy the final week in this one.

 

 

GOOG 280-270 MARCH BULL PUT SPREAD (10 Contracts entered on 02/23/09)

Profit of $65.00 per contract

Contingent Stop Order set at $285.00

Google was finally able to reverse its trend last week with the help of an analyst upgrade and the unveiling of some new products. The stock was able to continue its winning streak to four sessions on Friday when it gained $0.89, closing at $324.42. Google appeared to run into some resistance from its 50-day moving average (red line) on the chart. If it can break through this barrier, it could make it back to the $350 area in short order. With its next earnings report coming up in April, we wouldn't be surprised to see the stock make another big move to the upside ahead of time. For now, we are sitting much better this weekend with nearly a 45-point cushion in this spread.  

 

 

MNX 100-95 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

Contingent Stop Order set at $102.50

Heading into last week, this spread was one of our prime concerns. But after last Monday's sell-off, the MNX has only been moving north. The index cooled off a bit on Friday, but still managed to advance $0.38 and finish the week at $116.85. On the chart, the MNX could be giving us a double bottom (reversal) formation on the chart with it bouncing off the same level as last November. However, it appears that its move to the upside is going to be tested very soon with the MNX bumping up against its 50-day moving average (red line) on the chart near $118. While we'll be watching this level closely this week, our put spread appears to be sitting in very good shape. With a safety net of almost 17 points in this spread, we like our chances of this one finishing worthless on Friday.

 

 

 

PCLN 70-65 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

Contingent Stop Order set at $72.50

It doesn't get much crazier than the week we had in PCLN. After almost getting taken out of our put spread, the stock took off like a rocket. Unfortunately, for some members the trigger price got dinged and they closed the spread out early. Remember, there's absolutely nothing wrong with that. While the pain of closing it out early reduces monthly profit total, it also took care of the risk of a large loss. Also, keep in mind that the rest of us are not out of the woods just yet.

 

On Friday, PCLN was hit was a lot of indecision. While the stock finished in the green, it wasn't by much. It closed up $0.24 at $78.34. This gives us a little over 8 points of breathing room, but the way PCLN traded last week, it doesn't make us feel very comfortable.

 

We are going to keep our close-out trigger price the same and don't plan on making any intraday decisions on this one again. While we felt good about taking into account all of the Market internals last week, when a stock comes down to our price twice, we don't think we'll see the same type of bounce-back that worked in our favor last week. So let's keep a close eye on it along with a tight leash and see how things play out this week. 

 

 

 

 

As always, Trade Happy and Trade Smart

 

It might have been modest, but we'll take it. One day after the massive short-covering rally, stocks trade sideways but finish in the green. While we would have liked to see more carry-through to the upside, we'll take a fractional gain over a return to the selling.

 

When we started the March options cycle, we laid out the scenario for a Bear Market Rally. With this expectation, we felt really good about remaining on the put side this cycle. Finally, it decided to show up yesterday. Actually, it couldn't have picked better timing. Just as our cushions had evaporated, the fast and furious move to the upside re-inflated our cushions and has the potential to continue.

 

Remember, our hypothesis at the beginning of this cycle didn't revolve around a Market bottom. Instead, it was expecting a fast and furious rally at some time during the March options cycle, one that made us very fearful of being caught with a call spread.

 

Keep in mind that the first day in a Bear Market Rally is usually the strongest because all of the "shorts" are forced to cover their positions, thus adding extra buying pressure that tends to extend the move to the upside. While we have not hit the standard 10-20% advance that meets the textbook requirement for a Bear Market Rally, we are off to a good start after yesterday's gigantic advance.

 

This morning, it appeared that we were going to extend yesterday's move when futures were pointing to a strong opening. While we did open to the upside, the move ran out of steam rather quickly. The session was full of seesaw trading with the indices moving in and out of negative territory until late afternoon when another bank CEO stepped up to the plate.

 

Traders were encouraged this afternoon after JPMorgan's CEO stated that his bank was profitable in the first two months of the year. While it helped give the Market a boost, it wasn't the same impact as Citigroup's similar announcement one day earlier, which ignited a massive rally across the board. While it would have been nice to see another bull stampede, we'll still take another positive finish any day of the week.

 

While it was a slow day on the economic front, traders were paying very close attention to what was taking place on Capitol Hill. Testifying before a House sub-committee, SEC Chairman Mary Schapiro discussed a return of the famed "uptick rule" that prevents "short sellers" from being able to "short" a security on a downtick. Basically, this would prevent anyone from "shorting" a stock until a "long" trade is placed. Essentially, it would attempt to slow down falling stocks. We feel that it's more of a psychological ploy, but it probably would slow down spikes in volatility. But let's not kid ourselves because these bank stocks would still be where they're at today even if the "uptick rule" was in place.

 

The other big bullet point coming out of the hearing was a possible tweaking of the mark-to-market accounting rules. This accounting procedure requires banks to list assets on their balance sheets to what is considered market value. With illiquid markets for many of these assets, it's easy to comprehend why so many banks have been forced to take so many write-downs over the last year. While most experts agree on the need for transparent accounting, it's a very hard balancing act during times that markets become illiquid. For example, when the housing market started to crumble, banks had to start writing down mortgage related assets even if they weren't planning on selling them at the current market pricing.

 

The Fed Chairman touched on this yesterday when he talked about indentifying the weak points of mark-to-market accounting and making improvements. These changes would probably be related to the regulatory capital requirements that the government imposes on banks. Perhaps during times of economic crises, the government could ease some of its mandates, thus easing the pressure of financial institutions. All eyes will be on the Congressional committee tomorrow when it takes up the mark-to-market accounting rules.

 

Oil dropped sharply this morning after the Energy Information Administration reported a large build in weekly supplies. Oil traders were shocked when supplies increased by 700,000 barrels last week. Coming into the release, analysts were expecting a decline of 1 million barrels. The result of today's inventory report sent crude down $3.38 where it settled at $42.33 a barrel on the New York Mercantile Exchange.

 

While the inventory report was definitely weighing heavily on the price of oil, traders are already looking ahead to this weekend's meeting for OPEC (Organization of Petroleum Exporting Countries). The cartel meets in Vienna on Sunday where it is expected to make additional cuts in production. Previously, OPEC decided to reduce its quota of daily output by 4.2 million barrels a day. We'll discuss any news from this event in Sunday's newsletter.

 

The only other economic data on the session was the release of the budget from the Treasury Department. According to the Treasury, the government spending on the market intervention along with lower tax revenue has increased the federal deficit to $765 billion through the first five months of the budget year and remains on pace to hit a deficit of $1.75 trillion this year.

 

Today's Economic Reports

 

Date	ET	Release	For	Actual	Consensus	Prior
Mar 11	10:30	Crude Inventories	03/06	700,000	- 1 million	-757K
Mar 11	14:00	Treasury Budget	Feb		-$205B	-$175.6B

 

Late this afternoon there was more troubling news out of Freddie Mac. The poster-child for the collapsing housing market announced that it will once again be asking the Federal government for aid. The company had already been bailed out to a tune of $50 billion last year, but evidently that was not enough. Freddie Mac will be requesting another $31 billion after posting a fourth quarter loss of $23.9 billion. This comes shortly after Fannie Mae announced that it would also be asking the government for $15 billion.

 

It was a choppy session for the Dow Jones Industrial Average today as it moved between red and green all day long. A late surge took the index back into positive territory where it finished up 3 points at 6,930. The fractional gain was better than giving some of yesterday's profits back, but not quite as good as we were hoping for. How it finishes the rest of the week will tell us if this Bear Market Rally has legs.

 

 

The S&P 500 also vacillated between positive and negative territory the whole session. It finished the trading day up 1 point at 721. Our take is similar to the Dow in that a gain is better than a loss. On the upside, there's room for the index to run if it can make it over some stiff resistance at 740. In this area, there are two old support levels that might make it difficult for the S&P to make it through. But if it does, then there's nothing in its way up to the 800-point level. Let's see how close it can get to this level over the next two sessions.  

 

 

 

Once again, the Nasdaq was able to have the most strength in today's session. The tech-heavy index gained 13 points and finished the day at 1,371. The problem is that the index ran into a bit of resistance near its high of the session. This level near 1,400 was an old support level for the index, which usually turns into resistance on the way back up. But with the Nasdaq sitting at such depressed levels, there's no doubt it could break right through this barrier if the momentum picks up again.

 

 

The VIX (Chicago Board Options Exchange Volatility Index) took a beating yesterday and finally moved back below its 50-day moving average (red line) on the chart. The good news is that it fell another 0.76 of a point in today's session and closed at 43.61 points. If it keeps on moving lower, that would be a good signal for the Market.

 

 

 

What a difference two sessions make. After being pushed to the limit on Monday, we finally got the bounce that we've been waiting for. Although yesterday's rally appeared to give us plenty of breathing room heading into today's session, we got a scare this morning in our Priceline spread.

 

The stock started to crumble early in the day, even though the Market remained fairly strong. With our anticipation of another good day in the indices, we were very skeptical that the downdraft in Priceline would last. Due to this, we sent out an alert stating that we were going to hold off on closing out this spread even if it hit our trigger price.

 

While we tried to get this out to everyone in time, we do realize that members might have already had their orders set the night before and were unable to get the contingency close-out order pulled. We also mentioned, for those traders that didn't feel comfortable riding out this rollercoaster, it was certainly understandable if they wanted to leave their "stop" order in place.

 

If you fit either of these categories, there's nothing wrong with that. Even if you closed out this spread today, you should still have a decent profit working for this month with the rest of our spreads all sitting in much better shape. For auto traders and other members that did not close this spread out today, we still have a long ways to go until expiration. However, we did get a one-day reprieve when the stock moved higher the rest of the session. We'll discuss this position in more detail below. For now, let's take a look at all of our spread in more detail.

 

CURRENT MARCH SPREADS

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
RUT	Bull Put	330-320		15	.85
OIH	Bull Put	55-50		15	.40
GOOG	Bull Put	280-270		10	.65
MNX	Bull Put	100-95		15	.45
PCLN	Bull Put	70-65		15	.45

POTENTIAL PROFIT

$3,875.00

 

RUT 330-320 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $335.00 per contract

Contingent Stop Order set at $52.50

The RUT looked really good earlier in the session but finished the day down 1 point at $336.30. While the loss was minimal, it was just disappointing that the index couldn't hold on to some of its gains. However, after yesterday's massive rally in the small-cap index, we are breathing a big sigh of relief. While there's still plenty of time left in this one, we are sitting much better tonight with a cushion of 36 points. Let's see if we can build on this over the next two sessions.  

 

 

OIH 55-50 MARCH BULL PUT SPREAD (15 Contracts entered on 02/23/09)

Profit of $40.00 per contract

Contingent Stop Order set at $57.50

OIH opened higher but wasn't able to stay there long. The poor oil inventory report took the wind out of this ETF with OIH finishing the day down $1.01 at $70.20. Despite this move lower, we feel really good about where we're sitting in this position. With OPEC meeting this weekend, we don't see the price of crude falling very far anytime soon. While the price of oil isn't everything, it does affect the valuations of these companies, which is why there's the strong correlation between oil and this ETF. Heading into the final week and a half, we are sitting comfortably in this one with a safety net of 15 points.

 

 

GOOG 280-270 MARCH BULL PUT SPREAD (10 Contracts entered on 02/23/09)

Profit of $65.00 per contract

Contingent Stop Order set at $285.00

After battling a serious slide on the chart, Google was able to turn things around yesterday and then add another 9.74 points to the upside today. Its 3.16% advance in today's session was fueled by an analyst's upgrade to a "buy" rating. This strong advance on the day left Google sitting at $317.91 at the close. This puts the stock almost 40 points above our "short" strike price. While we still have plenty of time left in this position, it sure feels better tonight than it did on Monday night.

 

 

MNX 100-95 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

Contingent Stop Order set at $102.50

The MNX continued its march north today when it added to yesterday's bull-run. The Nasdaq 100 Index added another 1.22% today and continues to lead the way higher. In today's performance, the MNX moved up $1.35 and finished the session at $112.60. The only problem is that it's pushing into some strong resistance on the chart in the area of $115. If it can make it through this barrier, it would start to get exciting. If not, then we're likely to head lower and retest some support levels. Similar to our other spreads, our MNX position is sitting much better tonight than just a few days earlier. We have nearly a 13-point cushion with just over a week to go. We'll continue to keep a close eye on it, but are breathing much easier tonight.

 

 

 

PCLN 70-65 MARCH BULL PUT SPREAD (15 Contracts entered on 02/26/09)

Profit of $45.00 per contract

Contingent Stop Order set at $72.50

As we said earlier, it was one wild trading day for PCLN. The stock took a beating after competitor Expedia announced that it was eliminating airline booking fees for the next 10 days. Traders took this as a sign that Expedia was trying to cut into Priceline's market share, which cut its booking fees over a year ago. This news was bad for the whole sector, especially Orbitz, whose stock fell 25% on the news. Keep in mind that a price war is bad for the whole sector.

 

As we said when we sent out the trading alert this morning, we wanted to give this position some extra room because of the strength in the overall Market. If we wouldn't have had the strong rally yesterday along with the indications that we were heading higher this morning, we would have followed the plan of closing this spread down. However, with that said, if the stock starts to fall to our "stop" price again, we're going to exit the position. At this point, we feel that we've given it every opportunity to move back in our direction. The stock finished the session down $5.34 at $75.94.

 

 

 

 

As always, Trade Happy and Trade Smart

 

Sharp selling in Priceline.com Inc. (PCLN) has taken its toll on our put spread. However, with the Market remaining strong today, we want to hold off on closing out this spread early. Instead we want to sit tight on this downdraft. If any members are not comfortable and want to pull the plug on this spread, it is definitely understandable. For the rest of us, let's sit tight and see if the Market can lift this stock back up.