Stocks enjoy a strong morning as all three major indices advance on the session. It was a solid start to the holiday-shortened trading week this morning with the bulls taking firm control early on. While rest of the session was mostly sideways action, it wasn't really that unexpected due to the lack of news on the session. But then again, that's kind of expected when it's a short trading week in the summer. As spread traders, we love days like this.

Some of the buying we saw today can probably be attributed to window dressing. This is the term given to money managers adjusting their portfolios at the end of quarters. The goal is to improve the appearance of the portfolio before the statements go out to clients.

In other words, the money managers want to show that they're in good performing stocks from that quarter and not in the underperforming names. With the second quarter coming to a close tomorrow, we should continue to see the hot names continue moving to the upside.

This kind of reminds us of a saying that you can underperform in a down Market, but you can't underperform in an up Market. This is why we believe there has been little selling of this bull-run to the upside. The money managers don't want to miss a potential move to the upside. We believe that this was to help keep the Market from falling too far in the near term. Instead, it's definitely more likely that we could see some more action to the upside. We think this is why we've seen traders overlooking pessimistic news and hanging their hats on the "green shoots."

Of course, there was also plenty of talk today about the finality of the Bernard Madoff sentencing. With the Ponzi king getting a max sentence of 150 years, some believe this helped improve the sentiment on the Street today. We're not too sure about this conclusion.

The other big news today was that Apple CEO Steve Jobs has returned to the company on a part-time basis. We're just happy that this might help end the soap opera of speculation that has plagued him and the company over the past year.

Oil enjoyed a strong session thanks to more unrest in Nigeria and concern that OPEC will keep the prices high in the near-term. With OPEC calling for crude prices near $80 a barrel, oil traders took this as a sign that the black gold might have some more upside potential. On the session, oil climbed $2.33 and moved back above $70 a barrel. It finished the day at $71.49 a barrel on the New York Mercantile Exchange.

Gold wasn't able to ride the move to the upside today. Instead, it fell $0.30 and finished the day at $940.70 an ounce. Meanwhile, the dollar also dropped against other major currencies.

Today's Economic Reports

The Dow Jones Industrial Average moved higher right out of the gate this morning. However, the positive aspect to today's trading was that it was able to close near the high of the session at 8,529. Its 90 point advance on the day helped the large-cap index make it back above its 200-day moving average (black line) on the chart. This is very good news for the bulls. The next test will come at the next resistance level at 8,600 on the chart. Let's keep a close eye on how the Dow handles this barrier. At the same time, we are closely watching to see if the Dow's 50-day moving average (red line) is able to move back above the 200-day moving average. If this happens, it would be a very bullish signal to technical traders.

The S&P 500 also had a very strong start to the session. After the morning rally, the rest of the session was mostly sideways action for the index. But like the Dow, it was a very good sign that the index was able to finish near its high of the session at 927 points. Its gain of 8 points took the index back up to its 20-day moving average (light blue line) on the daily chart. If the S&P 500 can move back above this line, it should be able to move back towards its high for June. Let's keep a close eye on this development.

The Nasdaq Composite was our lone disappointment out of the three major indices. Although it still managed to advance 5 points in today's trading, its closing price of 1,844 was certainly off its high of the day. The good news on the daily chart is that the tech-laden index bounced nicely off its 20-day moving average (light blue line) shortly after the opening bell. We will be watching to see if this line now becomes a decent support level for the index. After all, it appears that the Nasdaq is poised to take on resistance near the 1,880 level on the chart. Let's see if this happens in the near future.     

The bullish sentiment on the Street meant more trouble for the VIX (CBOE VOLATILITY INDEX). It tumbled another 0.58 points in today's session and closed at 25.35. It also took out its low for the year and kept its downtrend intact. Let's see how much lower it can go.

We were able to get our bugs worked out on the technical front, which is good news for the website. Heading into this week, we wanted to see how the week opened before deciding to add any new spreads. With today's action, we feel very good about adding a new put spread for tomorrow. The problem with finding new spreads for July is that we're running up against another earnings season. This causes us to stay away from what normally would be some very good spreads.

Due to this, we're heading back to the RUSSELL 2000 INDEX (RUT) for another put spread. Most members know that we love to layer this index with additional spreads. Because we trade it so often, it almost becomes second nature once we have one spread going. With the index moving up since our initial spread, we are going to have to come back at higher strike prices. However, we're still able to come in nearly 60 points below where the index closed today. At the same time, this is below several very solid support levels on the chart. This should help us if there's any weakness in the RUT during the cycle.

NEW TRADE ALERT (1)

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

RUSSELL 2000 INDEX (RUT)

OPENING 450-440 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 450 strike price

Buy 15 July Puts at 440 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 $455.00. For auto traders, we will send in a close-out order if this happens.

CURRENT JULY SPREADS

RUT 430-420 JULY BULL PUT SPREAD (15 Contracts entered on 06/22/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $435.00

It was a green day for most stocks in today's session, but that didn't include the Russell 200 Index. Instead, it gave up $2.61 and finished at $510.61. Although it wasn't a positive finish for the small caps, the RUT did finish the day well off its low of the session. The index appears to be struggling at its 20-day moving average (light blue line) on the chart. If it can find a way to break through this barrier, it should be headed back towards its previous swing high on the chart in the area of $535. For now, our put spread appears to be in great shape with over 80 points of breathing room.

PCLN 95-90 JULY BULL PUT SPREAD (15 Contracts entered on 06/22/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $97.50

Priceline also couldn't make it back into the green at the closing bell. It shed $0.27 and finished the session at $114.65. Similar to the RUT, it was definitely a positive sign that it closed well off its low of the session. For the second straight session, the stock reversed once it hit its 20-day moving average (light blue line). In this case, it appears that PCLN is finding some solid support from this moving average. As long as it continues to do so, we should be in great shape. After today's trading day, we are left with a safety net of nearly 15 points in this spread.  

OIH 85-80 JULY BULL PUT SPREAD (15 Contracts entered on 06/22/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $87.50

OIH started the session on fire when it gapped higher at the open. However, it wasn't able to hold onto the gain this afternoon when it dropped heading into the closing bell. While it still finished with a gain, it was a mere $0.05. OIH continues to run into some tough resistance from its 50-day moving average (red line) on the chart. If it's able to break through this barrier, it should be off to the races for this one. With OIH sitting at $99.13 this gives us a cushion of almost 15 points in this position.  

As always, Trade Happy and Trade Smart

Due to technical difficulties, we won't be sending out our regular Weekend Update. We hope to have the issues worked out tomorrow. Please look for a newsletter Monday evening.

Until then, Trade Happy and Trade Smart

Due to technical difficulties we will not be able to send out are usual Sunday night newsletter.  We will send it on Monday, sorry for any inconvenience this has caused. Any alerts on any open spreads will be sent if needed.

Thank you,  

Large-caps struggle but the rest of the indices finish on higher ground despite an afternoon of selling. While there weren't anything unexpected in this afternoon's FOMC meeting, traders hit the sell button shortly after its release. This weighed on stocks and Treasury prices but helped push the dollar higher. However, two of the three major indices were still able to hold in positive territory at the closing bell.

This afternoon's trading revolved around the Federal Open Market Committee policy statement. While there weren't any surprises in the release, the afternoon trading was full of the usual volatility. The Federal Reserve kept the monetary policy in check with the federal funds rate between 0 and 0.25. At the same time, the statement said that the committee will keep the rate at this level for some time.

The Federal Reserve also stated that it still plans to purchase $1.45 trillion of mortgage-backed securities before the end of the year. The committee remains intent to buy longer-term government debt by the autumn. Although the Fed's balance sheet remains full, officials claimed in the statement that a rise in inflation is unlikely.

There was good news this morning when the Commerce Department reported that orders for durable goods rose in May. This was the second straight month that orders for big-ticket items increased, signaling a positive step for the economy. To top it off, the jump of 1.8% in May was much better than what the Street was expecting. Ahead of the report, consensus was calling for a decline of 0.9%. The back-to-back gain in durable goods orders is a very good sign for the economy because this should increase the need for more production in U.S. factories. Eventually, this is what will help reduce the unemployment rate and increase aggregate spending. Today's durable goods number was the best figure since the end of 2007.

The chart below shows just how far this figure has dropped. The massive drop-off in consumer and business spending caused this figure to fall well below the level we saw during the last recession in 2001. The question now is, "have we hit rock bottom?"

Graphic from Briefing.com

On the housing front, a report this morning showed new home sales declined 0.6% last month. The Street was looking for a slightly better figure in this morning's release. The new data puts sales on an adjusted annual rate of 342,000 sales. This brings the number down slightly from April's report. With plenty of unsold inventory still on the market, it appears that we're going to have to wait for a recovery in housing. Currently there is a 10 month supply of homes.

Tech stocks enjoyed a strong session after Oracle's strong fourth quarter earnings. At the same time, semiconductors enjoyed a strong session with some heavy hitters posting strong gains. Yahoo also jumped after word leaked out that Microsoft was possibly interested in working with the online search engine. Of course, we all remember the soap opera last year between the two companies. But since then, Yahoo has cleaned house of some of the troublemakers, which should help the relationship between the two companies this time around.

Meanwhile, oil supplies dropped more than expected in this morning's Energy Information Administration report. According to the government, U.S. supplies fell by 3.87 million barrels last week. The 1.1% drop was much more than expected and helped boost the price of crude this morning. Oil finished the session down $0.57 at $68.67 a barrel on the New York Mercantile Exchange. However, gasoline reserves jumped much more than expected this morning with consumers still cutting back on usage. This news caused gasoline to fall in trading this morning.

Treasury yields spiked this afternoon while prices fell. Of course, these two move inversely. The benchmark 10-year note finished with a yield of 3.701% while the 30-year bond dropped to 4.447%. This jump in yields was mostly due to the fact that the Federal Reserve resisted the temptation to increase its planned purchase of Treasuries. Today's news from the FOMC helped boost the greenback with the dollar index rising after the release of the policy statement.

Friday's Economic Reports

The Dow Jones Industrial Average has been leading the way lower and that continued today. For the fourth straight session, the large-cap index declined. It dropped 23 points in today's session, closing near another support level at 8,299. This morning, it appeared as if the Dow was gaining strength when it jumped above its 50-day moving average (red line) on the chart. But the selling this afternoon wiped away those hopes. Let's see if the Dow can fight its way back over the next two sessions or if it will continue to show weakness.

The S&P 500 also showed an abundance of upward momentum this morning but that didn't last. While it was able to still hold on to a 5 point gain at the close, this was well off its high of the day. The interesting thing is that its closing price of 900 is right at its 50-day moving average (red line) but above its 200-day moving average (black line). Where it's sitting now makes things very interesting for the rest of the week. If it's able to hold above these lines, it's a very good sign for the bulls. If not, then it gets good for the bears. Obviously, we're positioned with the bulls so let's keep a close eye on things.       

The Nasdaq Composite gapped higher this morning on the open and continued to attempt to lead the Market higher. While it also closed off its high of the session, it still locked in a 27 point gain on the day. This amounted to a 1.55% advance that left the Nasdaq at 1,792. Let's see if it can continue to defy the large-caps and continue moving north.    

The VIX (CBOE VOLATILITY INDEX) fell 1.53 point in today's session and closed at 29.05. While a drop in the VIX was good to see, we continue to keep a close eye on its 50-day moving average (red line) because the index continues to flirt with this moving average. A break above it will signal strong selling in the Market.

The pull-back on Monday helped us get filled in our new spreads with ease. Unfortunately, that selling continued into this afternoon after the FOMC statement was released. Despite the rough afternoon, all of our positions were still able to hold onto gains at the close. After yesterday's sell-off, we were very interested in adding some additional layers to our spreads on the put side. However, today's bounce-back in all of our positions took that strategy off the table. At least it did for now.

With our uneasiness about where things are headed the rest of the week, we think the prudent play is to keep our powder dry for now. Let's keep that extra maintenance in cash for the time being. If we get some confirmation of where things are headed, we'll send out an alert tomorrow night. If not, let's ride things out the rest of the week and take a fresh look at things this weekend. Remember, one of the keys to successful trading is to not rush the trade. Instead, we're going to let the trades come to us and sit on our hands until this happens. For now, let's take a look at how our current positions are sitting.

CURRENT JULY SPREADS

RUT 430-420 JULY BULL PUT SPREAD (15 Contracts entered on 06/22/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $435.00

The RUT was showing plenty of strength in today's session before the FOMC statement this afternoon. Afterwards, the small-cap index took a dive, but managed to hold onto a small gain on the session. The RUT closed up 5 points at 494. While the advance was certainly positive, the fact that it couldn't hold above its 50-day moving average (red line) was a little troubling. Despite this, the index did hold above its 200-day moving average (black line). We are going to be watching how the RUT handles both of these moving averages over the next two sessions, which is going to be extremely interesting to watch play out.

PCLN 95-90 JULY BULL PUT SPREAD (15 Contracts entered on 06/22/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $497.50

Priceline had been flirting with its 50-day moving average (red line) over the last two sessions and managed to hold above it. The stock gapped lower on today's open, but was able to climb during the session. It finished the day up $3.79 at $110.37. This was a big momentum shift for our spread and one that we hope to see continuing the rest of the week. It also shows why we've talked about the strong support stocks get from moving averages. As long as PCLN is able to hold above this one, we shouldn't have anything to get concerned about.

OIH 85-80 JULY BULL PUT SPREAD (15 Contracts entered on 06/22/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $87.50

OIH appeared to be heading back towards its 50-day moving average (red line) this morning before the EIA figures were released. After the release, OIH was hit with selling that persisted through the rest of the day. While it was able to close up $0.44 on the session at $96.04, it closed well off its high. This leaves us with a 16 point cushion in this spread. The last two daily candles show there's a lot of indecision in OIH. Let's see which way this one decides to go over the next few trading days.

As always, Trade Happy and Trade Smart

Stocks took a step back last week as a hint of skepticism started to sink in. Perhaps the economy isn't as close to bouncing back as some have wagered. Climbing bond yields and talk about risk aversion caused the bulls to think twice last week. This was despite tech stocks remaining strong and signs that oil was finally running into some resistance. While many are still calling for an end to the recession by the fourth quarter of this year, that doesn't mean that we're going to move right into a time of expansion.

We often talk about the VIX when referring to fear in the Market. There's also another important indicator that traders look to when determining the level of anxiety and that's the yield spread in bonds (also referred to as a credit spread). This is the spread between Treasury securities and non-Treasury securities that are identical in all respects except credit rating. The difference is the amount needed to compensate the investor for risk because the Treasury is considered a risk-free security. In recessions, this spread widens as investors seek a higher yield to compensate for more risk. In times of expansion, this spread tends to narrow as default risk is reduced.

Last week, this spread continued to widen with Friday marking its biggest jump in over a month. This is a very concerning development and shows that the rally is running into some headwinds at these levels. While we're not convinced that the move to the upside is over, the increase in the credit spread (yield spread) tells us that some investors are taking their money off the table and locking in some of the gains from the last few months.

The run in tech stocks continued on Friday with the phone makers leading the charge to the upside. Both Apple and Palm made advances on the final trading day of the week. Apple jumped on news that its new iPhone was landing in stores while Palm appears to be enjoying strong sales from its latest smart phone. This weekend, there was breaking news that Apple's Steve Jobs received a liver transplant about two months ago. He has been on medical leave from the company but is scheduled to return to work later this month. It will be interesting to see how this news affects the company's stock on Monday.

Oil finally ran into some resistance at the end of the week. Despite rising tensions in Iran and more troubles in production in Nigeria, crude finally closed below $70 a barrel for the first time in a few weeks. It tumbled $1.82 in Friday's session, settling at $69.55 a barrel on the New York Mercantile Exchange.

The dollar took a beating intraday on Friday when news hit the Street that Moody's issued the State of California a warning that it could be facing a downgrade due to its mounting debt. However, the tumbling price of oil helped the greenback pare most of its loss on the session. Despite this rebound at the end of the day, the dollar remains under significant pressure due to the rising government deficit.

Friday's Economic Reports

It was another relatively uneventful session for the Dow Jones Industrial Average. It spent the morning in the green but the afternoon was mostly red. It did make a late session charge back into positive territory, but couldn't hold onto the gain. The Dow closed down 15 points at 8,539. On the chart, it remains above our next support level at 8,400 and its rising 20-day moving average (light blue line). These are the levels we'll be watching closely at the beginning of this week.

The S&P 500 was able to fight off the late selling and finish the day up 2.86 points at 921. Similar to the Dow, it was a fairly quiet option expiration session for the index. Although it lost ground on the week, it was good to see the S&P 500 move in the right direction on Friday.      

The Nasdaq Composite continued to show plenty of strength on Friday when it climbed 19 points and closed at 1,827. It appears that the tech-laden index is doing its part to try to lift the Market. However, its true test will be coming up with earnings season getting under way very soon.   

The VIX (CBOE VOLATILITY INDEX) dropped sharply for the second straight session on Friday. On the final trading day of the week, it shed 2.04 points and closed at 27.99. This comes just a few sessions after it looked as if the VIX was going to test some major resistance levels on the chart. What's amazing about the VIX is that its 52-week trading range is from 18.64 up to 89.53....what a year it has been.

CLOSED/EXPIRED JUNE SPREADS

RUT 390-380 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit of $50.00 per contract

MNX 125-120 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit of $45.00 per contract

POT 95-90 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09 & closed on 06/17/09)

Original credit of $60.00 per contract

Avg. close-out debit $102.50 per contract

Avg. total loss $42.50 per contract

PCLN 85-80 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit of $45.00 per contract

We came soooo close to another 100% profitable month. But, like we always say, that's trading. We play the odds but sometimes we get hit with some unexpected news like we did in POT and the stock falls off a cliff. While any loss is painful, last week was another good test for our risk management system that we started using last November. It didn't prevent a loss in our POT spread, but it did minimize the loss to the point that we walked away with another profitable month. It was our eighth profitable month in a row! Now that's something to be proud of.

The latest win puts us within striking distance of our goal of 12 consecutive months of profit. It is certainly true that we're never going to be able to remove the risk of something like POT happening once in a while. However, our improved risk management strategy of shutting down spreads before they hit our "short" strike price has definitely given us a nice winning streak. At the same time, it should help to remove some of the anxiety involved with trading. Let's keep the losses small and keep the winning streak alive.

With that said, it's time to stop patting ourselves on the back. Let's roll up our sleeves and get to work on some new spreads for July. It's going to be a little bit tricky because we're moving into another earnings season, which is often volatile. However, summer months tend to be relatively uneventful with the light volume. Of course, that's not what we encountered last year.

While we got the pull-back in the Market that we were looking for last week, the indices are still sitting above the support levels that we expect them to hit before bouncing. This is usually the perfect time to come in with new put spreads. If we get a little more action to the downside, it should help us get filled in our spreads before we get the bounce that we think will happen. Because of this, we're going to shoot for three spreads for Monday and see if we can get a good profit potential going for July.

As probably expected, we're going to start with our money play in the RUSSELL 2000 INDEX (RUT). The small-cap index has been money in the bank for us for quite a while now and we don't expect this streak to end anytime soon. As usual, let's start out at a very conservative level and see what unfolds this month. As in the past, we love adding extra layers to this spread, but let's keep this in our back pocket for now and see how the price action plays out over the next week or two.

Our second new spread is also going with a position from last month, Priceline.com Inc. (PCLN). This stock has been on fire, showing us a great deal of relative strength. With tech continuing to be in the leadership role, this spread is a great way to ride the momentum to another profitable month. Because the stock has been on a terror, we're going to need to go up a few strike prices from our June spread. However, we still have great support levels on the chart and can pick up a decent premium at a fairly safe level. We just hope we don't have a problem getting filled in this one.

Our final new spread is going to be in one that we've been trading in the Professional Trader newsletter, Oil Services HOLDRs (OIH). We've been playing this one from the put side over the past few months for the Pro Traders and have profited from the huge run-up in oil. While we do expect some consolidation in the near term, we still believe that we can profit from a conservative put spread. As a matter of fact, we can come back with a put spread this month at the same exact strike prices that we traded last month. We love when we're able to do this. Let's start with these spreads for Monday and see how things go from there.

NEW TRADE ALERT (3)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

OPENING 430-420 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 430 strike price

Buy 15 July Puts at 420 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 $435.00. For auto traders, we will send in a close-out order if this happens.

Priceline.com Inc. (PCLN)

OPENING 95-90 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 95 strike price

Buy 15 July Puts at 90 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 $97.50. For auto traders, we will send in a close-out order if this happens.

Oil Services HOLDRs (OIH)

OPENING 85-80 JULY BULL PUT SPREAD (15 contracts)

Sell 15 July Puts at 85 strike price

Buy 15 July Puts at 80 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 $87.50. For auto traders, we will send in a close-out order if this happens.

RUT DAILY CHART

PCLN DAILY CHART

OIH DAILY CHART

As always, Trade Happy and Trade Smart

It was a whip-saw type of session that finished with tech moving higher while large-caps were left behind. Unfortunately for us, the morning was a little too exciting with one of our spreads falling apart (will discuss later in newsletter) early in the trading day. But despite the plethora of news coming out today, there wasn't much of a trend to today's trading.  

The Street got the latest reading on inflation this morning with the Consumer Price Index showing that prices barely moved up in May. Ahead of the report, consensus expectations were for an increase of 0.3% last month. But the actual number was a mere increase of 0.1%, which dampened all the inflation worries that have been peculating over the past month. Because of the record government spending and budget deficits, traders have bet on rapid inflation in the future. This has caused commodity and material stocks to lead the recent rally. After today's report of practically no inflation, the question now is whether we'll see profit-taking in these same names.

Keep in mind that on a year-over-year basis, consumer prices have dropped by the largest amount in nearly 60 years. However, as with any signs of a possible recovery, we think that we'll see a continued rally in materials and commodities as investors look for a way to hedge against inflation worries. As of now, it still looks like inflation is more of a concern a year or two away rather than a concern today. Of course, others would argue that the policy of quantitative easing is just going to re-inflate another bubble, like the one that got us into this mess. But when the unemployment level remains extremely high, it's hard to argue against the Fed doing something to help improve matters even if there's long term risk. It's just a matter of how much easing should they do and when should they stop that has us concerned.

Also in the report this morning, the Labor Department announced that core CPI (excludes food and energy prices) was in line with expectations. Analysts had been looking for an increase of 0.1% in May and that's exactly what the report showed. The problem we see in this number is that oil and gasoline prices have been rising steadily and will likely show a big increase this month. Let's keep this in mind heading into next month. The graphic below shows divergence between CPI and core CPI. It tells us that the economy can handle a large move up in CPI, but not core CPI.

Graphic from Briefing.com

Pessimistic words from FedEx this morning took a bite out of pre-Market trading. The company announced a larger-than-expected loss for the fourth quarter and lowered expectations for upcoming quarters. The company also attempted to lower future expectations for the company's earnings and mentioned that it expects the economy to remain weak. Companies like FedEx usually are a good barometer of how well the economy is performing. This is why the troubling news out of the company was so discouraging to traders.

Meanwhile, oil fell back below $70 a barrel this morning despite a bullish report from the Energy Information Administration (EIA). The government's weekly inventory report showed an unexpected decline of 3.87 million barrels last week. Although oil hit a new low for the week intraday, it finished the session up $0.56 at $71.03 a barrel on the New York Mercantile Exchange. At the same time, the EIA reported that gasoline stockpiles climbed by 3.4 million barrels last week. This jump was unexpected and might help to halt the rapid rise at the pump for consumers.

In other news today, the President unveiled his plan for updating government regulation of the financial system. The plan would give new powers to the Federal Reserve to oversee the whole financial system. The President believes that these new reforms will prevent future economic crises. We'll leave it up to others to decide but bank stocks did fall on the news.

Today's Economic Reports

The Dow Jones Industrial Average traded in and out of positive territory the whole day, but finished the session lower. It declined 7 points on the day and closed at 8,497. Yesterday's session was the most problematic on the daily chart with the large-cap index breaking below its 200-day moving average (black line) as well as its 20-day moving average (light blue line). It appears that it's likely headed to test its 50-day moving average (red line). Let's see how this plays out the rest of the week.

The S&P 500 also had a see-saw trading session but finished one point into red territory. The fractional loss leaves the S&P at 910 points. Unlike the Dow, this index is still above its 200-day moving average (black line) on the chart. However, it did break below its 20-day moving average (light blue line) in yesterday's session. We would really like to see it hold above its 200-day moving average. At the same time, we are closely watching its rising 50-day moving average (red line), which appears to be rising up to the longer-term moving average. It should be interesting to see if these two converge later in the week.     

The Nasdaq Composite remains the strongest index and that held up today with the tech-laden index gaining 11 points on the trading day. The .66% advance took the Nasdaq up to 1,808 and left it above its 20-day moving average (light blue line) on the chart. As long as it can hold above this line, the Nasdaq should be in good shape. The other notable thing on the daily chart is that the 50-day moving average (red line) has crossed above its 200-day moving average (black line). This is a very bullish indicator and one that we'll continue to watch.   

Unfortunately, the VIX (CBOE VOLATILITY INDEX) has reversed its downtrend this week. It shot up like a cannon on Monday and then continued moving higher yesterday. This took the "fear index" above its resistance on the downward sloping channel that we have drawn on the chart. Although the VIX dropped 1.14 points in today's session, it appears ready to test its 50-day moving average (red line) on the chart. Let's keep a close eye on the volatility levels the rest of the week.

So much for smooth sailing to the finish line this week thanks to the speed bump we hit this morning with our Potash spread. Heading into this week, we had a 21 point cushion in this spread with only five trading sessions left. But as we found out this morning, that amount of breathing room was only good enough for a little over two sessions. The stock took a nose-dive this morning and hit our trigger price early in the session.

The stock's free-fall was ignited when a German fertilizer announced that demand for potash remains weak and the current prices are unsustainable. At the same time, Briefing.com reported that farmers are cutting back on their use of potash and that planting delays have also hurt fertilizers. Unfortunately for us, it appeared that POT took the brunt of the bad news this morning when it gapped lower and continued to get slammed.

This took the stock down to our close-out price, which cost us an average of $102.50 per contract to close out the position. When we subtract out the credit we took in when we entered the spread ($60.00 per contract) we get a loss of $42.50 per contract. Since we are trading 15 contracts, the average loss is $637.50. While any loss is painful, the good news is that this one is manageable. It also won't prevent us from having a profitable month as long as we don't have another spread blow up over the next few sessions. This is a prime example of why we believe it's important to spread out the risk onto all of our spreads. By doing this, we can still walk away with a profit when one turns against us.

We are adding a new item to our newsletters that we hope will add value to members. Quite often, we get questions on different aspects of the Market, options and the economy. We thought it would be a good idea to cover these subjects in the newsletters because if one member is asking them, we're sure that others have the same difficulty understanding certain things. We're not sure if we'll have time every newsletter, but we thought it would be a good segment to add to the mix when time permits. We'll call it "The Traders Classroom" and try to spend a little bit of time going in depth on issues.

CURRENT JUNE SPREADS

RUT 390-380 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $395.00

The RUT fell hard in yesterday's session, taking out a support level and its 20-day moving average (light blue line) on the chart. In today's trading, it appeared ready to test its 200-day moving average (black line) before it reversed and finished the day up 3.29 points at 507. We shouldn't have anything to worry about in our put spread. But we are watching the RUT's rising 50-day moving average (red line) to see if it can cross its downward sloping 200-day moving average (black line). If so, then it should give us the opportunity for another good put spread next month.

MNX 125-120 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $127.50

Tech was flying high today and the MNX went along for the ride. The MNX climbed 1.27 points in today's action and moved back above its 20-day moving average (light blue line) when it closed at $145.59. This move gives us a 20 point cushion in our put spread with time running out.

POT 95-90 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09 & closed on 06/17/09)

Original credit of $60.00 per contract

Avg. close-out debit $102.50 per contract

Avg. total loss $42.50 per contract

With POT closing today at $95.59 we feel that we made the right decision to shut this one down early. While it's painful to take a loss, look at how far this one fell in the last three sessions. Wow! Sometimes the odds don't always work out like they should.

PCLN 85-80 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $87.50

PCLN also fell hard in yesterday's session, dropping below its 20-day moving average (light blue line) on the chart. However, it bounced back in today's trading with a gain of $0.65, which helped stop the bleeding in this spread. Just like our other remaining spreads, we have a huge safety net left in this position that should be more than enough to get us across the finish line with our strike prices still intact.

As always, Trade Happy and Trade Smart

Our POT trigger price got hit this morning, causing us to close out the position. Please find the alert listed below. We will have an update in tonight's newsletter.

TRADE ALERT 

Potash Corp. of Saskatchewan , Inc. (POT)

CLOSING 95-90 JUNE BULL PUT SPREAD (15 contracts)

Buy 15 June Puts at 95 strike price (puts we previously sold)

Sell 15 June Puts at 90 strike price (puts we previously bought)

We suggest using a Market Order to get filled quickly.

Stocks continue to drift sideways, but still lock in another win on the week. Make it four positive weeks in a row for the Dow Jones and S&P 500 while the Nasdaq has been green 13 out of the last 14 weeks. Perhaps more importantly, the Dow finally made its way back into the black on the year (the last of the three major indices to make it back into positive territory year-to-date).

There wasn't very much excitement on Friday morning, which is typical for the day before a weekend in the summer. The only bit of real economic news came from the University of Michigan's consumer sentiment index, which released its preliminary reading for the month of June. While the final reading won't come for a few weeks, the initial numbers released on Friday show another tick up in consumer confidence. The report showed a reading of 69.0, which is up from May's number of 68.7. However, it's important to keep in mind that these readings are not a good indicator of consumer spending and it's usually extremely volatile due to fluctuations in energy and political events. Regardless, Friday's increase keeps the positive trend going in the right direction. The chart below shows that we remain very weak on an historical basis.

Graphic from Briefing.com

Crude finally took a breather at the end of the week. It dropped a mere $0.64 on Friday, but that still leaves the "black gold" sitting at $72.04 a barrel on the New York Mercantile Exchange. That closing price amounted to a gain of 5.26% last week for oil, marking its fourth consecutive week of gains. Although we're still way under last year's price, it doesn't appear that the bullish sentiment in oil is going to cool down anytime soon.

Meanwhile, gold fizzled out on Friday, dropping $21.20 a troy ounce. For the week, it shed 2.25% and settled at $940.10. Despite the pullback in gold, money continued to flow into commodity-related names last week as traders bet on a reflation trade. The dollar gained ground on both the euro and the yen on Friday.

While the indices were drifting sideways last week, the Treasury yields saw a spike. The 10-year bond jumped to 3.783% on Friday. Keep in mind that yields move in opposite directions than the price. The Treasury prices have taken a pounding over the past several weeks due to the mounting government deficit and massive spending. While this will undoubtedly cause inflation pressures, some wonder if the jump in Treasury yields is a little too early. If this is true, then we'll see the yields start to fall and the prices rise sometime in the near future. At least until we get a few more green shoots in the economy. 

Friday's Economic Reports

The Dow Jones Industrial Average made it four positive weeks in a row on Friday with its positive finish on the session. However, the chart shows that last week was more sideways action than it was directional. On Friday, the large-cap index climbed 28 points and finished the week at 8,799. But until the Dow breaks out of its current trading range, we're not expecting to see anything exciting happen. However, once it does either break through resistance or fall through support, it could be a sizable move.

The S&P 500 also continued its consolidation pattern last week, but was still able to advance for the fourth week in a row. On Friday, the S&P 500 barely made it into positive territory with a 1 point increase, taking the index up to 946 points. But just like the Dow, the S&P 500 continues to trade between its nearest support and resistance level on the chart. This week, we'll be watching to see if it's able to break out of this pattern on the chart.    

The Nasdaq Composite also made it into green territory on the week, but like the rest of the indices, it wasn't anything exciting. However, on Friday it lost 3 points and finished the week at 1,858. The tech-laden index continues to lead the other major indices up the chart. But even the Nasdaq has stalled the last two weeks. While it hasn't been stuck between a major support and resistance level on the chart, it certainly hasn't shown any conviction in either direction. Let's keep a close eye on this index for any possible leadership role in either direction this week.  

The VIX (CBOE VOLATILITY INDEX) continued to drift lower last week, but did edge up by 0.04 of a point on Friday. Its closing price of 28.15 certainly keeps its downward trend alive and well. If it continues to move lower this week it should be good news for the Market.

It was another easy week for our spreads across the board. With the sideways action in the Market, it created another uneventful trading week for us. Of course, that's exactly how we like them. As we said last week, this is how the summer trading months are supposed to be.

Unfortunately, over the past year we've become accustomed to anything but the kind of weeks we've had lately. Volatility has been drying up and stocks continue to move north. While we would love to see this trend continue, our memory is fresh with wild swings. This makes us prepare for the worst and hope for the best.

We doubt we have anything to worry about this week with all of our spreads sitting in excellent shape. But we're planning for the new spreads and are very curious on how the indices seem to be drifting sideways. We would like to see them break out of this range before we enter new spreads for next month....not afterwards. But as we've said during our seven month winning streak, let's continue to be conservative in our approach and we should be able to keep that streak of profitable months alive. Although we have all week to think about next month, for now, let's take a look at how our spreads are looking heading into the home stretch of this cycle.

CURRENT JUNE SPREADS

RUT 390-380 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $395.00

The RUT made a strong move to the upside late Friday afternoon, which took the index into positive territory at the closing bell. The small-cap index gained $0.75 on the session and finished the week at $526.83. Although the RUT was able to advance over the final two trading days of the week, it still lost 0.7% over the last five sessions. However, it still remains up 5.5% on the year and is sitting 136 points above our put spread heading into the final week of the June options cycle. We should be able to coast to the finish line in this position. 

MNX 125-120 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $127.50

The MNX was down big early into trading on Friday, but a late rally helped the tech-heavy index pare most of that loss on the session. It finished the day off $0.70 at $149.00. The good news is that it closed well off its low of the session, continuing its sideways pattern on the chart. We wouldn't mind seeing another repeat of last week for this index. Heading into the home stretch, we're also sitting comfortably in this position with 24 points of breathing room.

POT 95-90 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $60.00 per contract

Contingent Stop Order set at $97.50

Potash ran out of steam on Friday when it tumbled $1.87. However, its closing price of $116.01 still meant that it was a very good week for the fertilizer stock. On the chart, it continues to follow its 20-day moving average (light blue line) up the chart and is now sitting 21 points above our "short" strike price. We should be able to sit back and relax in this one with only five trading days left and plenty of support levels separating the stock from our put spread.   

PCLN 85-80 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $87.50

PCLN continued to drift sideways on the chart last week. While it did trade in a decent range on Friday, it closed down only $0.30 on the day at $115.31. Until it breaks out of its trading range, we're not going to see any dramatic moves in this one. Of course, we don't mind that at all. With only five trading days left until expiration, our 30 point cushion should be more than enough to get us to the finish line with a profit in this one.

As always, Trade Happy and Trade Smart

Stocks battle an afternoon sell-off and finish the session in the red. A disturbing Treasury auction and surging oil prices sent the bulls to the sidelines this afternoon. However, an optimistic Beige Book lifted the mood and gave the buyers a reason to come back late in the session. However, the buying wasn't strong enough to erase all of the red but did get the indices back to nearly flat on the session.

The Market got a lift this afternoon after the Fed survey showed signs that the recession is easing. The Beige Book is considered a snapshot of economic conditions in 12 regions around the country. While there weren't any surprises in the release, it did confirm the same analysis that the Federal Reserve Chairman has been reporting lately. The survey noted that the downtrend is showing signs of moderating in five of the 12 regions. It also stated that expectations for future business activity have improved in several regions.

While the Beige Book was a bit of good news, there was some troubling news for stocks earlier in the afternoon when the Treasury auction caught traders by surprise. The 10-year Treasury auction saw a jump in yields to 3.996%, which was the highest level since last October. A rise in interest rates will certainly hurt the already troubled housing market while also increasing the cost of debt for the U.S. government. Let's keep a close eye on the next auction slated for Friday with the 30-year Treasury sale.

It was nothing but red today for federal deficit according to the Treasury Department. The increased government spending in May pushed the U.S. deficit up to a record $189.7 billion last month. This pushes the total for the current year up to nearly $1 trillion and don't forget that there are four months left to go in the budget year.

It appears that the Chrysler bankruptcy proceedings are moving forward after the Supreme Court turned down an appeal to stop the merger with Fiat SpA. Bond holders had petitioned the court to prevent what it perceived as unfair treatment with unsecured creditors (e.g. the union) coming out better than secured. After all, part of the advantage of being a bondholder is that you're supposed to have first claim to the assets in the event of a bankruptcy. Instead, the secured debt holders are walking away with about $0.29 on the dollar for their investments.

With the legal issues now settled, Chrysler's assets can be transferred to the Italian automaker. It also finalized the closing of 789 dealers nationwide. Fiat won't be required to put up any money for its acquisition, but will instead be providing its small car and engine technology. We're still a little confused on how they pulled that one off. Fiat will now hold a 35% stake in the new company while the United Auto Workers union will have the controls with a 55% ownership. What's left will go to the U.S. and Canadian governments. 

In other corporate news, Citigroup is finally converting the government's preferred shares into common stock. This will give the government a 34% stake in the troubled bank and should help Citigroup meet its benchmark set by the "stress test." Currently, the taxpayers have a $45 billion investment in the bank. While this black hole appears to be permanent, the government did allow 10 other banks to repay TARP funds on Monday. But now there's a battle brewing between the Treasury and Congress as to where those funds should go.

Oil got another boost today when the U.S. Energy Information Administration (EIA) announced that there was a tightening in supplies last week. According to the agency, the country's inventories declined by 4.4 million barrels, a much bigger decline than the Street was expecting. Heading into the report, analysts had predicted a contraction of only 700,000 barrels last week. But even with this being the fourth pull-back in the last five weeks, stockpiles remain over 20% higher than last year at this time.

Crude finished the session up $1.32 at $71.33 a barrel on the New York Mercantile Exchange. This was a new high on the year, which was the second day in a row that black gold made a new yearly high. At the same time, gasoline supplies shrank by 1.6 million barrels last week, which was also much larger than expected. This should keep the price at the pump moving higher.

Today's Economic Reports

It was another wide range candle today for the Dow Jones Industrial Average, but the end result was another sideways move on the chart. The large-cap index was all over the place, but its closing price of 8,739 was just 24 points below where it started the session. On the chart, the index is sitting just above its 200-day moving average (black line) and right between support and resistance levels. If it's able to break above or below either of these lines, then we could see an extended move.

The S&P 500 is once again in a sideways pattern this week. While it also moved around a lot today, it finished the session down only 3 points at 939. Let's continue to keep an eye on its nearest support and resistance level on the chart for any indications of a breakout.  

The Nasdaq Composite was deep in the red for most of the session, but a late session rally took it up to 1,853. This amounted to a 7 point decline on the day, but that was up significantly from its low of the session. Unlike the other two indices, the Nasdaq isn't bumping up against any strong resistance level on the chart, however, it has taken a rest from its steep incline. Every indication is that it will continue moving north unless the economic conditions worsen.

The VIX (CBOE VOLATILITY INDEX) ticked up by 0.19 of a point in today's session, taking the index up to 28.46 points. However, it remains under its 20-day moving average and remains inside its downward sloping channel on the chart. As long as we don't see a spike in the "fear index," we should be in good shape this cycle.

The sideways trading this week has been perfect for our spreads. We would be completely fine with another week and a half of the exact same thing. The consolidation is not uncommon to see after such a strong move to the upside over the previous few months. As long as volatility remains low, we'd love to see this same trading every month. If we can get the indices to stay in a consolidation pattern, we could profit on both sides next month.

This is exactly like summer months used to be. We could slap a bear call spread on the upside and a bull put on the downside. Then we'd walk away until expiration. We're not sure if those days will ever come back, but the low volatility sure is making trading a lot less stressful these days. With that said, let's take a look at each of them in detail.

CURRENT JUNE SPREADS

RUT 390-380 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $395.00

The RUT looked as if it was headed sharply lower earlier in today's session, but a late-day surge helped pare most of that loss. By the closing bell, the small-cap index was down only $4.22 at $523.71. Although we have given back a little bit of ground this week, our put spread remains in great shape with a cushion of over 130 points. We should be able to sit back and relax in this spread until we hit expiration next week. 

MNX 125-120 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $127.50

The MNX also fought its way back from a deep hold this afternoon. At the end of the session, the tech-heavy index was only down $0.63 at $149.53. This keeps the MNX well off its nearest support level at $146 and just off its weekly high that it hit yesterday. With plenty of strong support levels separating our position and the index, we aren't feeling any pressure in our put spread at this time.   

POT 95-90 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $60.00 per contract

Contingent Stop Order set at $97.50

Potash was our lone position that spent most of today in the green. The fertilizer has enjoyed a lift this week due to the strong demand for grains. With these prices moving up, they should take POT along with them. We like the move that POT made on the chart when it climbed right along with its 20-day moving average during the first two trading days this week. Let's see if it can get back to the resistance level that it hit last week on the daily chart. 

PCLN 85-80 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $87.50

PCLN started the session in the green, but that proved to be short-lived. The stock hit negative territory early in the trading day and never was able to recover. It finished the session down $2.19 at $115.81. If it faces more downward pressure at the end of the week, let's see if it can hold above the support level in the area of $113 on the daily chart. But even it falls through this line, we're still sitting in excellent shape in this position and shouldn't have any to worry about this cycle.

As always, Trade Happy and Trade Smart

The highly-charged trading session gave us plenty of action on Friday, but finished about where it began. Stocks surged higher Friday morning after some very good news in the non-farm payrolls. However, troubling numbers from the unemployment rate cut the legs off the rally and prevented any type of meaningful move ahead of the weekend.

We often talk about the non-farm payroll being the big enchilada because of all the anticipation leading up to its release. With the intense pressure on the release Friday, the report from the Labor Department was anything but disappointing. The data came in much better than expected when it showed that only 345,000 jobs were lost last month. This was much better than the loss of 520,000 jobs that the Street was expecting heading into the release. It was also the smallest loss reported since last September. At the same time, there was a pick up in new jobs in education and health services sectors. The chart below shows the massive rebound on Friday compared to the steepness of the downward slide.

Graphic from Briefing.com

While that news got traders excited Friday morning, there was some troubling news that was like stepping into a cold shower in the morning. That was the Labor Department's report on the unemployment rate, which surged to 9.4% in May. This was much higher than the consensus expectations of 9.2% and a big jump from the last reading of 8.9% in April. This was the highest level in 26 years and put a halt to the early morning rally. Keep in mind that over 6 million jobs have been lost since the beginning of 2008.

Graphic from Briefing.com

Crude fell on Friday when it lost $0.37 and finished the session at $68.44 a barrel on the New York Mercantile Exchange. But even with some signs of weakness last week, it still rose 3.21% over the five sessions and remains just under $70 a barrel even with weak demand. We would hate to see where it would go if demand actually picked up.

Meanwhile, gold had a worse session than other commodities when it dropped $19.50 an ounce to $961.70. However, just like oil, it moved up on the week with a 1.75% gain over the last five sessions. Copper also climbed 3.80% on the week.

Of course, the only thing in the commodities' way was the rising dollar. The beaten-down greenback rose on the thought that the Federal Reserve will have to increase interest rates in the near future. Although it was a rollercoaster session for the dollar, it finished the day up against its major rivals. It hit $1.3965 against the euro, 98.86 compared to the yen, and $1.5977 to the pound. At the same time, the 10-year Treasury continued to decline last week when the yield (moves opposite of price) hit its highest point since the fall of 2008.

Friday's Economic Reports

After breaking through resistance near 8,800 on Friday, the Dow Jones Industrial Average couldn't hold above that line. However, it still managed to finish up 12 points on the day at 8,768. It was another strong week for the large-cap index with it posting a 3.1% advance over the five sessions. Let's see if it can continue moving north this week.

The S&P 500 also took on a strong barrier on Friday, but wasn't able to hold above it. Instead, the index reversed and finished the session down 2.37 points at 940. Despite this pull-back on Friday, the S&P 500 still managed to climb 2.3% on the week. Let's keep a close eye on its nearest support and resistance levels on the chart this week.

The Nasdaq Composite refuses to be held down. Even though it shed a fractional point on Friday, the index continues to break through resistance levels on the chart. The Nasdaq continues to lead the other indices higher. Over the last five trading days, the tech-laden index is up 4.2%. Let's see if this upward momentum can continue into the new week.

After hitting its falling 20-day moving average (light blue line) on the chart, the rally in the VIX (CBOE VOLATILITY INDEX) has fizzled out. It dropped 0.56 of a point on Friday and finished the week at 29.62. It will be a good sign for the bulls if the "fear index" continues to drift lower.    

It was another solid performance for our spreads last week. With the indices racing higher, the size of our cushions increased.......for the most part. We are also monitoring the VIX closely for any signs of increased volatility. Remember, the faster the volatility dries up the faster the premium in our spreads will dissipate. As long as we avoid any wicked selling over the next two weeks, we should be able to survive anything else the Market throws at us. It's not one or two sharp sell-offs that scare us, it's a prolonged selling trend that would hurt our put spreads. But we really don't see that taking place within the next two weeks.

The main question we have is whether this rally has any more legs? After all, it's already been one heck of a rally on only signs of a possible bottom in the economy. It's not like anyone is forecasting sustained economic growth anytime soon. But as we've said in the past, let's not fight the trend because the Market can remain irrational longer than we can stay solvent. That's why we've avoided making any spreads into iron condors over the past several months. It feels a lot better to be rich than to be right. With that said, let's take a look at how we're sitting heading into the new week of trading.  

CURRENT JUNE SPREADS

RUT 390-380 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $395.00

The RUT broke right through a resistance level on Friday morning, but wasn't able to hold on to its big gain on the session. Instead, the small-cap index finished the session down $1.32 at $530.36. While it was a red finish on Friday, the index still turned in a very strong performance last week. The RUT climbed 28 points over the five days and finished the week up 5.7%. This increased its year-to-date advance to a positive 6.2% and keeps the momentum pointing upward. With a cushion of 140 points, we should be able to sit back and not worry about this one over the next two weeks.

MNX 125-120 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $127.50

The MNX also started strong on Friday, but wasn't able to hold on to a bulk of its advance on the session. However, it still closed in the green with a $0.05 advance, taking the technology-laden index up to $149.32. Similar to the RUT, this index also broke through our resistance line but wasn't able to hold on to that advance. Despite this, it still was a very good five sessions for our put spread. After Friday's close, the index is sitting nearly 25 points above our "short" strike price with half of the time now gone in this spread. Let's see if we can coast over the next two weeks in this one.   

POT 95-90 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $60.00 per contract

Contingent Stop Order set at $97.50

Our POT spread appears to be the one giving us the most excitement so far this cycle. On Friday, it gave us another wide range of trading, with it finishing the session down $1.16 at $113.63. The good news is that it finished well off its low of the session. The bad news is that it was also much higher earlier in the day and couldn't hold on to that either. With the grain markets holding up fairly well, this should play into the bullish momentum in the fertilizer stocks, which should help keep this stock propped up over the next two weeks. However, its wild trading sessions will certainly keep us entertained. Heading into this week, we have a cushion of 18 points and some strong support levels on the chart that should work to our benefit. Let's keep a close eye on its rising 20-day moving average (light blue line) this week to see if POT can stay above it.

PCLN 85-80 JUNE BULL PUT SPREAD (15 Contracts entered on 05/21/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $87.50

It was another excellent week for our PCLN spread with the stock continuing to surge higher. While Friday's close of a nickel loss wasn't anything to write home about, it was still another solid five trading days for our put spread with the stock marching up the chart. It appears that its performance isn't going unnoticed. On Friday, it was mentioned on CNBC's show "Fast Money" as a stock that should get a boost from an end to the recession. With money continuing to flow into this stock, we should be in great shape with a safety net of over 30 points in this spread.

As always, Trade Happy and Trade Smart