Stocks continue to drift sideways as economic data starts to disappoint. The latest batch of economic data and earnings reports have put the brakes on the recent rally, however, the indices haven't given much back. While the recent action in the Market hasn't been a continuation to the upside, the fact that we haven't see more selling pressure is definitely a bullish sign.

So much for all the positive economic data! There was nothing positive about this morning's report on durable goods. According to the Commerce Department, orders for big-ticket items dropped by the largest amount since January. The 2.5% decline in orders was dramatically larger than the 0.6% that the Street was anticipating and took its toll on the early morning trading. The largest declines were from the aircraft and auto orders. The chart below shows that orders for durable goods has remained at extremely weak levels.

Graphic from Briefing.com

There was also troubling news today from the Treasury auction that didn't go over so well on the Street. When there was less bidding than anticipated, the yield spiked on the government's five-year bond, causing the U.S. to pay more for raising capital through the auction process.

The selling in commodities continued today when the dollar rallied. Both oil and crude led the way lower today. Gold tumbled $11.90 a troy ounce to $927.20. At the same time, oil plunged 5.8% after a huge jump in supplies were announced in the weekly Energy Information Administration's report. According to the government, oil supplies spiked by 5.1 million barrels last week, which was drastically higher than the Street was expecting. This resulted in oil shedding $3.88 today, down to $63.35 a barrel on the New York Mercantile Exchange.

The lone piece of economic data released this afternoon was the Federal Reserve's beige book. This is a survey of 12 regions around the country. The report showed some stabilization in regions such as the Northeast and Midwest. The release can be seen as a positive sign, but there really wasn't anything to get excited about. After all, there's a big difference between stabilization and growth in the economy.

Today's Economic Reports

The Dow Jones Industrial Average continued to drift sideways today for the fourth session in a row. It finished the day down 26 points, but that was well off its low of the session. The 0.29% tumble left the Dow at 9,070. The longer it drifts along the 9,000 point level the stronger the support should become at this area. Let's see how it handles the next two sessions of the week.  

The S&P 500 also continued to move sideways in today's session. However, it did test the 970 point level on the chart before rebounding and closing at 975 points. As in the Dow's 9,000 point level, in the S&P we'll be watching the 970 point level the rest of the week. If it can hold above it, this should be excellent news for the bulls. But if it falls through it, we could see a round of profit taking.  

The Nasdaq Composite has been trading in the same pattern as the other two indexes so far this week. In today's session, it fell 7 points and closed at 1,967. On its daily chart, the Nasdaq has been drifting along the 1,950 point level on the chart for the last four trading days. This is the support level we'll be watching the rest of the week.  

This week's sideways action and intraday volatility has helped the VIX to move higher. It climbed 0.60 of a point in today's action, closing at 25.61 points. On the chart, it moved back to its 20-day moving average (light blue line) but remains well below its 50-day moving average (red line). Let's keep a close eye on how it handles these moving averages the rest of the week.

It took all three sessions this week but we finally got into all of our new spreads. We used the volatility on Monday to get into three of them, but had to make adjustments for the last two new spreads yesterday. This month we lowered our credits and moved our spreads a little farther out of the money. This is because we were very concerned about a pull-back in the indices. We've had quite a big run and we were expecting to see some investors lock in profits. But so far, we haven't seen this.

Instead, the indices have been drifting sideways and each round of heavy selling intraday has been met with some buying towards the end of the day. This price action is a very bullish sign. While we're still concerned about the possibility of a retracement, we won't be disappointed if we don't get it. After all, there's an awful lot of money still on the sidelines. If we get any indication of a move higher, this money could easily flow back into the Market and push everything higher once again.

For now, let's take a look at how all of our new spreads are sitting heading into the second half of the week.

CURRENT AUGUST SPREADS

MNX 147.50-142.50 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/27/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $150.00

The MNX looks pretty identical to the Nasdaq on the daily chart. After its big run up on the chart, it has drifted sideways over the past four sessions. In today's action, it slipped $0.59 and finished the day at $159.96. As long as it avoids any significant selling, our put spread looks really good. We currently are sitting with a cushion of 12 points in this spread.

AZO 140-135 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/27/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $142.50

It's been a tough week for AutoZone with the stock falling below its 50-day moving average (red line). It continued lower today when it fell $0.69 and finished the day at $152.96. While it wasn't good to see this action on the chart, keep in mind that it's still sitting nearly 13 points above our "short" strike price. We did get some good news tonight when competitor O'Reilly Automotive turned in stellar earnings. This should help to give AZO a boost in tomorrow's trading. Let's see if this gives us some bullish momentum heading into the weekend.

AAPL 145-140 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/27/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $148.00

Apple held its own in today's session. The stock advanced $0.03 at the close, taking it up to $160.03. This gives us a 15 point safety net in this spread and plenty of upward momentum on our side. On the chart, we would like to see its 50-day moving average (red line) climb to our $145 strike price by next week. This will help give us some extra protection just in case we need it.

RUT 450-440 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $455.00

The RUT started out the week giving us two straight green candles. This made it a little difficult for us to get filled in our put spread. After making our adjustment and getting a little selling today, we were fortunate enough to finally get filled. The small-cap index slipped $3.57 and closed at $548.38 in today's trading.

OEX 405-400 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $410.00

The OEX has also given us plenty of sideways action so far this week. In today's session, it fell $1.20 and closed at $455.18. As long as the index continues to drift along in this area, we shouldn't have anything to get too concerned about. Let's just sit tight and see how the rest of the week unfolds.

As always, Trade Happy and Trade Smart

NEW REFERRAL PROGRAM

Current members can get paid to pass our name along! Refer our service to a new subscriber and if they stay a member for one month you'll get a free month's membership. Simply have them list your name in the "Discount Code" box when signing up. They will still get a free two week trial and if they stay one month, you'll get your Free month! There's no limit on the number of referrals that you can pass along. As a matter of fact, for every four referrals that you send our way you'll get a free six month subscription! With rewards like these, why not spread the word today?

It turned out to be another tough day for our two fills. Although we had a good sized pull-back intraday, it wasn't quite enough for our new spreads. For tomorrow, we're going to adjust the spreads and then try once again. If we get the same type of intraday movement tomorrow, we should get some fills.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders. These orders only apply to those members who are not already filled in these spreads.

RUSSELL 2000 INDEX (RUT)

OPENING 490-480 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 490 strike price

Buy 15 August Puts at 480 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 $495.00. For auto traders, we will send in a close-out order if this happens.

S&P 100 INDEX (OEX)

OPENING 420-415 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 420 strike price

Buy 15 August Puts at 415 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $422.50. For auto traders, we will send in a close-out order if this happens.

RUT DAILY CHART

OEX DAILY CHART

As always, Trade Happy and Trade Smart

NEW REFERRAL PROGRAM

Current members can get paid to pass our name along! Refer our service to a new subscriber and if they stay a member for one month you'll get a free month's membership. Simply have them list your name in the "Discount Code" box when signing up. They will still get a free two week trial and if they stay one month, you'll get your Free month! There's no limit on the number of referrals that you can pass along. As a matter of fact, for every four referrals that you send our way you'll get a free six month subscription! With rewards like these, why not spread the word today?

We got enough volatility for quite a few fills today. We only fell short on two of the new spreads. For tomorrow, we're going to keep those two trade alerts the same and see if we get a little more movement, which should help us get filled.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders. These orders only apply to those members who are not already filled in these spreads.

RUSSELL 2000 INDEX (RUT)

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

Sell 15 August Puts at 450 strike price

Buy 15 August 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.

S&P 100 INDEX (OEX)

OPENING 405-400 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 405 strike price

Buy 15 August Puts at 400 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $410.00. For auto traders, we will send in a close-out order if this happens.

As always, Trade Happy and Trade Smart

A few disappointing earnings in the tech sector took the wind out of the rally on Friday, but the indices still turned in another solid performance last week. The indices might have been mixed on Friday, but all of them turned in weeks of back-to-back advances with the earnings continuing to propel the Market higher.

Friday's lone economic report came in slightly better-than-expected. According to the University of Michigan Consumer Sentiment Index, there was a slight uptick in consumer sentiment. The Street was looking for a figure of 65.0 heading into the release but the actual number was a little better with a number of 66.0. Although this report was up from the preliminary report earlier in July, keep in mind that the index remains much lower than where it was in June. This is not anything to get excited about. But as most economists point out, there's not a correlation between this index and actual consumer spending. Due to this, let's not get too concerned about the latest report. After all, it's highly influenced by the most recent food and energy prices.

Graphic from Briefing.com

The rest of the day's action revolved around earnings, which weren't the best in the tech sector. After several positive releases in a row, the Street turned sour on reports from Microsoft and Amazon. But after the second straight week of optimistic reports, we're not going to get too concerned about a little selling at the end of the week.

Oil made it two weeks in a row on Friday when it climbed back above $68 a barrel. The falling dollar helped crude climb the second straight week when it rose $0.89 on the final day of the week, closing at 68.05 a barrel on the New York Mercantile Exchange. If the economic conditions continue to improve, crude will remain strong. But if the sentiment changes, watch out below because we could see a repeat from last month when the bottom fell out on our OIH spread. Now that's still a little bit painful just thinking about it!

Friday's Economic Reports

The Dow Jones Industrial Average turned in another stellar performance last week. The large-cap index climbed nearly 4% over the five trading days and finished the week up 23 points at 9,093. The Dow found little opposition from the 9,000 point barrier and easily took out this old resistance level. In the last two weeks alone, the Dow has enjoyed its best winning streak since the spring of 2,000. Let's see if it can continue running to the upside this week.

The S&P 500 also bolted right through old resistance levels on the chart last week when it climbed 4.13% over the five sessions. On Friday, it rose a mere 2 points, but finished the week at 979. On the daily chart, the index appears poised to make it up to the 1,000 point barrier before hitting stiff resistance. Let's see if it can get there this week.

The Nasdaq Composite continued to give us plenty of green candles last week on its way to a 4.21% advance over the five trading days. However, on Friday the index did pull back 7 points to finish the week at 1,965. On the daily chart, we're having a hard time finding any strong resistance levels. However, there is some resistance just below 2,100 on the weekly chart. If earnings continue to come in strong, we could see the Nasdaq continue to fire on all cylinders this week.

With the indices screaming higher last week, the VIX continued to move to the downside. The "fear index" lost another 0.34 of a point on Friday and finished the week at 23.09 points. It would be good news for the bulls if this index continues to slide this week.

The strong rally in the Market proved to be especially challenging for our fills last week. We had some intraday selling that came close to getting us filled, but that doesn't really matter when the end result is the same whether they came close or not. At the same time, we're attempting to use our same strategy that we do every month of not chasing the new spreads. But with the indices continuing to race higher, we need to make some adjustments.

We're going to make a few changes in our strike prices for some spreads and adjustments of the credits in others. But as usual, we're going to need a little bit of selling to get filled. Keep in mind that we do still have four weeks left in the August cycle, so let's not get ourselves too worked up about not having any new spreads yet. There's still plenty of time left in this one.

For tomorrow, we're going to add one new spread to the mix. We're going with a put spread in Apple Inc. (AAPL). We wanted to add this one earlier, but were a little concerned after its big run-up following its stellar earnings report. But after the stock was able to maintain its strength at the end of last week, we feel confident coming in with a put spread 15 points below where it closed on Friday. Let's ride the bullish momentum in this one and pick up a decent credit along the way.

This increases our new trades for Monday to five. Let's continue to keep our limit orders in place while using Day Orders. If we don't get everything on Monday, we'll send out an alert with adjustments for Tuesday. Until then, let's see if we can get paid for using our patience this month.

NEW TRADE ALERT (5)

Please Note: These are Day Orders and Limit Orders. These orders only apply to those members who are not already filled in these spreads.

RUSSELL 2000 INDEX (RUT)

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

Sell 15 August Puts at 450 strike price

Buy 15 August 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.

S&P 100 INDEX (OEX)

OPENING 405-400 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 405 strike price

Buy 15 August Puts at 400 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $410.00. For auto traders, we will send in a close-out order if this happens.

MINI-NASDAQ 100 INDEX (MNX)

OPENING 147.50-142.50 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 147.50 strike price

Buy 15 August Puts at 142.50 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $150.00. For auto traders, we will send in a close-out order if this happens.

AutoZone Inc. (AZO)

OPENING 140-135 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 140 strike price

Buy 15 August Puts at 135 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $142.50. For auto traders, we will send in a close-out order if this happens.

Apple Inc. (AAPL)

OPENING 145-140 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 145 strike price

Buy 15 August Puts at 140 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $148.00. For auto traders, we will send in a close-out order if this happens.

RUT DAILY CHART

OEX DAILY CHART

MNX DAILY CHART

AZO DAILY CHART

AAPL DAILY CHART

CURRENT AUGUST SPREADS

As always, Trade Happy and Trade Smart

NEW REFERRAL PROGRAM

Current members can get paid to pass our name along! Refer our service to a new subscriber and if they stay a member for one month you'll get a free month's membership. Simply have them list your name in the "Discount Code" box when signing up. They will still get a free two week trial and if they stay one month, you'll get your Free month! There's no limit on the number of referrals that you can pass along. As a matter of fact, for every four referrals that you send our way you'll get a free six month subscription! With rewards like these, why not spread the word today?

It was another tough day for fills with the indices racing higher. While this can get frustrating, we don't want to force the trades just yet. Instead, we're going to leave the trades the same for tomorrow just incase we get a big pullback. While the odds of this might seem low, we have seen stranger things over the past year. If we don't get filled tomorrow, we'll regroup in Sunday's newsletter and figure out the best plan of action. But for tomorrow, let's throw our orders out there and see if we can snag something.

NEW TRADE ALERT (4)

Please Note: These are Day Orders and Limit Orders. These orders only apply to those members who are not already filled in these spreads.

RUSSELL 2000 INDEX (RUT)

OPENING 440-430 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 440 strike price

Buy 15 August Puts at 430 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 $445.00. For auto traders, we will send in a close-out order if this happens.

S&P 100 INDEX (OEX)

OPENING 400-395 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 400 strike price

Buy 15 August Puts at 395 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $405.00. For auto traders, we will send in a close-out order if this happens.

MINI-NASDAQ 100 INDEX (MNX)

OPENING 142.50-137.50 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 142.50 strike price

Buy 15 August Puts at 137.50 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $145.00. For auto traders, we will send in a close-out order if this happens.

AutoZone Inc. (AZO)

OPENING 140-135 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 140 strike price

Buy 15 August Puts at 135 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $142.50. For auto traders, we will send in a close-out order if this happens.

The indices finished mixed today with stocks riding a rollercoaster of a session. The earnings reports were all over the place this morning, which translated into a trendless trading session. Normally this would be good for entering new spreads, but once again, we just couldn't quite get filled.

It was all about earnings today with plenty of results for the Street to dissect. The big news this morning was from financial giant Morgan Stanley, who surprised the Street with a disappointing quarter. The company announced weak results due to repayment of the TARP funds, as well as, other accounting charges. Because of the upbeat announcement from Morgan Stanley's rivals last week, the Street was looking for more of the same from them. When the company barely turned a profit, pre-market futures took a nose-dive.

Remaining on the disappointment side, Wells Fargo and Advanced Micro Devices both took a hit despite some decent numbers. Pfizer also reported disappointing numbers, but the stock moved higher when the company raised its profit forecast for upcoming quarters. Wells Fargo had a 47% jump in profits thanks to its takeover of Wachovia. AMD had a loss in the second quarter, but it was much less than what the Street was expecting. Normally, these stocks would have moved up on the news but they were down early on in today's session.

Despite all of the red early in the day, two stocks that helped lift the Market were Apple and Starbucks, who both reported positive earnings for the quarter. Apple gapped higher after beating analysts' estimates with its strong iPhone and Mac sales. Meanwhile, Starbucks was able to cut enough costs to exceed analysts' expectations.

Oil faced selling pressure this morning despite a drop in inventories. In the latest Energy Information Administration report, crude supplies fell by 1.8 million barrels last week. However, this was in line with expectations. At the same time, gasoline stockpiles rose by 800,000 barrels while other distillates also climbed. This helped offset the small gain in oil levels and increased the selling pressure on oil in today's trading. Oil finished the day $0.21 lower at $65.40 a barrel on the New York Mercantile Exchange.

In other news today, Federal Reserve Chairman Bernanke spent his second straight day testifying before a Congressional committee. The testimony focused on the chairman defending his institution's actions in attempting to stabilize the economy. Bernanke found himself in the hot-seat numerous times during his testimony as lawmakers questioned his authority in some of its actions while others blamed the Federal Reserve's inactions in preventing the financial meltdown. To us, it was just another day full of hot air with politicians talking for the cameras.

Today's Economic Reports

The Dow Jones Industrial Average finally ran into a little selling today that it couldn't overcome. The large-cap index finished the session 34 points lower at 8,881. This broke the Dow's seven-day winning streak just above an old resistance level. Tomorrow, we'll be watching to see how the index handles the 9,000 point mark on the daily chart.  

The S&P 500 also wasn't able to make it into green territory at the closing bell. It dropped a mere half of a point and finished the day at 954 points. On the chart, the S&P is also running into some selling pressure at its previous swing high. How it finishes the week will tell us a lot about the current rally.  

The Nasdaq Composite couldn't be dragged down today. On the back of some solid earnings from Apple, the tech-laden index surged 10 points higher at the close. The 0.53% advance took the Nasdaq up to 1,926. Although it was much higher in the session, we'll take any gain when the other two major indices couldn't even muster that. Today's green finish was the 11th straight for the Nasdaq. Let's see if it can continue this streak over the next two sessions.  

The VIX (CBOE VOLATILITY INDEX) continued its downward spiral today when it gave up 0.40 of a point and finished the day at 23.47. If the bulls are able to maintain control of the Market, we should see this index continue to give up ground over the next two days.   

Lately, there has been a lot of talk about the formation of a Cup and Handle pattern. This is formed when the index or stock trades in a pattern that looks like a U pattern and then drifts sideways or pulls back slightly. At the same time, the trading volume should also dry up. Then the index or stock should re-test the previous high for a third time. If it breaks through this old high it is a very bullish indicator. However, if it fails it could head all the way down to test the old low. Below is the chart for the Dow (DIA) with our lines drawing the Cup and Handle pattern.

The only thing we don't like about this pattern is that it looks more like a "V" bottom than a "U" bottom to us. For a traditional cup and handle pattern, it should be a "U" bottom. On the chart, the index has taken out the previous swing high, but we'd like to see more carry-through to the upside. If we get this, we should see another strong move to the upside. On the other side, if this rally stalls and we head lower, let's keep a close eye on the previous swing low from two weeks ago. There has also been some chatter about a head and shoulders pattern (or reverse head and shoulders pattern), which we'll discuss in a future newsletter.

The seesaw trading sessions so far this week made things difficult for our new spreads. We did get plenty of selling intraday so far this week, but just when we started to get close to being filled, the indices reversed and headed higher. With our belief that we should see a pull-back in the near-term, we're reluctant to adjust the strikes in our spreads. Keep in mind that we still have four and a half weeks left in the August cycle. This leaves us plenty of time to get filled in our new spreads.

For tomorrow, let's keep our strikes in place but adjust the credits in our RUT and OEX trades. At the same time, let's add two new spreads for tomorrow. With technology taking back its leadership role, we want to move back into the MINI-NASDAQ 100 INDEX (MNX) with a put spread. This index has continued to rally this week on the back of some strong tech earnings and we want take advantage of the bullish momentum in this index. Last month, we weren't able to? a spread that was conservative enough for us. However, this month we think we have done exactly this with a put spread that is below several very strong support levels and far enough out of the money that we can sleep easy at night.

Also on tomorrow's open, we are going back with a spread that we're bringing down from the Professional Trader newsletter last month, AutoZone Inc. (AZO). We've been doing put spreads on this stock for months because of its strong fundamentals in a souring economy. The stock has been drifting sideways on the chart along its 50-day moving average (red line) for the past few months. We like the very strong support levels on the chart and the fact that we're able to come back with a put spread at the same exact strike prices as last month. We're going to place our put spread under the rock solid 200-day moving average (black line), which should give us some extra strong back-up if needed. Let's start with these four tomorrow and see how things play out.

NEW TRADE ALERT (4)

Please Note: These are Day Orders and Limit Orders. These orders only apply to those members who are not already filled in these spreads.

RUSSELL 2000 INDEX (RUT)

OPENING 440-430 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 440 strike price

Buy 15 August Puts at 430 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 $445.00. For auto traders, we will send in a close-out order if this happens.

S&P 100 INDEX (OEX)

OPENING 400-395 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 400 strike price

Buy 15 August Puts at 395 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $405.00. For auto traders, we will send in a close-out order if this happens.

MINI-NASDAQ 100 INDEX (MNX)

OPENING 142.50-137.50 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 142.50 strike price

Buy 15 August Puts at 137.50 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $145.00. For auto traders, we will send in a close-out order if this happens.

AutoZone Inc. (AZO)

OPENING 140-135 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 140 strike price

Buy 15 August Puts at 135 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $142.50. For auto traders, we will send in a close-out order if this happens.

RUT DAILY CHART

OEX DAILY CHART

MNX DAILY CHART

AZO DAILY CHART

CURRENT AUGUST SPREADS

As always, Trade Happy and Trade Smart

NEW REFERRAL PROGRAM

Current members can get paid to pass our name along! Refer our service to a new subscriber and if they stay a member for one month you'll get a free month's membership. Simply have them list your name in the "Discount Code" box when signing up. They will still get a free two week trial and if they stay one month, you'll get your Free month! There's no limit on the number of referrals that you can pass along. As a matter of fact, for every four referrals that you send our way you'll get a free six month subscription! With rewards like these, why not spread the word today?

With futures moving lower this morning, let's see if we can take advantage of the move. We're going to send in the same trade alerts for today for those members not already filled in the new spreads.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders. These orders only apply to those members not filled already.

RUSSELL 2000 INDEX (RUT)

OPENING 440-430 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 440 strike price

Buy 15 August Puts at 430 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 $445.00. For auto traders, we will send in a close-out order if this happens.

S&P 100 INDEX (OEX)

OPENING 400-395 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 400 strike price

Buy 15 August Puts at 395 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 $405.00. For auto traders, we will send in a close-out order if this happens.

The strong start to the week caused us problems for our new trade alerts. But with so much time remaining in the August option cycle, we're in no hurry to chase the spreads. Instead, let's leave the strikes and credits the same for tomorrow and see if we get a pull-back.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders. These orders only apply to those members not filled on Monday.

RUSSELL 2000 INDEX (RUT)

OPENING 440-430 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 440 strike price

Buy 15 August Puts at 430 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 $445.00. For auto traders, we will send in a close-out order if this happens.

S&P 100 INDEX (OEX)

OPENING 400-395 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 400 strike price

Buy 15 August Puts at 395 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 $405.00. For auto traders, we will send in a close-out order if this happens.

In last night's trade alert for both the regular and professional trader members, the first line in the RUT trade had 430-420 listed. It should have read 440-430. Please find this corrected below. Thanks.

RUSSELL 2000 INDEX (RUT)

OPENING 440-430 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 440 strike price

Buy 15 August Puts at 430 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 $445.00. For auto traders, we will send in a close-out order if this happens.

Strong earnings helped push stocks dramatically higher on the week. As we like to say, "What a difference a week makes." Heading into last week, the negative sentiment was everywhere with talk of retesting the March lows. After a round of positive earnings, it appears that the pendulum has swung back the other way and nobody wants to be left behind. We're not sure how much is left to this rally, but the moves to the upside last week increased our winning streak to nine straight months! Talk about perfect timing for a rally.

Financial companies got things started on the right foot and then tech stocks kept things moving north. Even with stocks taking a breather at the end of the week, the indices turned in stellar performances last week. The question now is whether it can continue with another huge round of earnings reports coming out this week. So far, just over 50 of the S&P 500 companies have reported earnings and next week there are a lot of big ones slated to release second quarter results.

The Street received some encouraging economic news towards the end of the week, which helped stocks hold onto their massive gains earlier in the week. On Thursday, the initial claims number declined for the second straight week. This week's report shows the number of unemployed filing for benefits shrunk to 642,000.

On Friday, the downtrodden housing sector showed some signs of life. Both the housing starts and building permits came in better-than-expected. According to the Commerce Department, home construction unexpectedly rose in June while building permits also increased. The data also showed thatsingle-family starts made their biggest gain in over four years. While the news was definitely an encouraging sign, let's put things in perspective. The chart below does this by showing the two data points on an historical basis and it's not very pretty.

Graphic from Briefing.com

The improvement in the housing data helped push Treasury prices lower on Friday. The yields, which move inversely with prices, jumped to their largest increase in almost two months. At the same time, the dollar moved up on the session.

Oil continued its run to the upside on Friday with its gain of $1.54. The 2.5% advance helped crude finish the session at $63.56 a barrel New York Mercantile Exchange. The three-day run at the end of the week helped oil finish the week up over 6% as positive housing reports reignited talk of a recovery in the economy.

There was also plenty of chatter regarding the troubled small business lender CIT Group on Friday. The lender has been attempting to fend off a bankruptcy filing with the government saying that the company doesn't pose systematic risk to the economy. While things seemed dire on Friday, reports this weekend have hinted that the company could be finding some emergency financing from Goldman Sachs and/or JP Morgan. So far, the threat of a bankruptcy hasn't riled the Market.

Friday's Economic Reports

The Dow Jones Industrial Average broke its four-week losing streak last week with its 7.33% advance. Friday's 32 point move to the upside capped off a 597 point gain for the index over the past five sessions. This was the largest move for the large-cap index since just after Thanksgiving last year.  

The S&P 500 also broke its weekly losing streak on Friday when it finished the week ahead 61 points from where it began on Monday. This amounted to nearly a 7% advance over the last five trading sessions and was its best performance since early in March.   

The Nasdaq Composite took back its leadership role last week with its 7.44% climb. This was also the Nasdaq's best five-day performance since early March. Although the tech-laden index gained only a point on Friday, it has been up eight straight sessions.  

The VIX (CBOE VOLATILITY INDEX) continued to drop on Friday when it shed 1.08 points and finished the week at 24.34. If the rally continues into next week, we should see the VIX continue to fall.

Everything seemed to fall into place last week, helping us to breeze through the final week of the July options cycle. We just wish the rally would have started a little earlier so that we could have saved our OIH spread from chewing up a big chunk of our profit this month. But after already discussing this in Wednesday's newsletter, there's no need to rehash the same issues in tonight's newsletter. Instead, let's celebrate the fact that it's now nine profitable months in a row! With that said, let's go ahead and add up the results for July.

CLOSED/EXPIRED JULY SPREADS

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

Profit of $45.00 per contract

RUT 450-440 JULY BULL PUT SPREAD (15 Contracts entered on 07/02/09)

Profit of $50.00 per contract

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

Profit of $45.00 per contract

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

Original Credit of $45.00 per contract

Close-out Debit of $130.00 per contract

Total loss of $85.00 per contract

While the profit total was nowhere close to the levels we like to have, let's not beat ourselves up too much. After all, that last month was one heck of a ride. We spent four weeks heading lower and then took it all back in the final week of the cycle. It's extremely hard to ride that kind of rollercoaster and still be able to walk away with any profit at the end. So let's pat ourselves on the back for coming away with some change at the end of the month.

Now, it's time to start working on getting month number ten. After last week's move in the Market, it firmly shows us that the risk is on the upside. There's still plenty of cash on the sidelines and that makes it dangerous to come in with any call spreads in the near term. However, we're certainly skeptical of a prolonged rally. We went into last month believing that we might be in store for some sideways or consolidation in the near term and wouldn't be surprised to see this play out over the next few months. But if earnings continue to come in better than expected, this rally could continue to have legs.

For Monday, we're going to start with two new spreads. The first one is going back to our sure and steady RUSSELL 2000 INDEX (RUT). This has been one of our favorites over the past few years and we believe that small-caps are poised to move higher with all of the recovery talk. The index has been improving dramatically on the chart and gives us some very conservative strike prices while still picking up a solid premium. This should be another excellent spread this month.

Our second new position is going to be a put spread on the S&P 100 INDEX (OEX). We've enjoyed a nice run of put spreads in the Professional Trader newsletter in this spread and think it's a good time to bring this one down to the Regular Newsletter this month. The index took off like a rocket last week with some of the larger capitalization stocks leading the way. We want to ride this bullish momentum to another profit this month by placing our strike prices below some very strong support levels on the chart. This one is giving us a very good entry point this month.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

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

Sell 15 August Puts at 440 strike price

Buy 15 August Puts at 430 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 $445.00. For auto traders, we will send in a close-out order if this happens.

S&P 100 INDEX (OEX)

OPENING 400-395 AUGUST BULL PUT SPREAD (15 contracts)

Sell 15 August Puts at 400 strike price

Buy 15 August Puts at 395 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 $405.00. For auto traders, we will send in a close-out order if this happens.

RUT DAILY CHART

OEX DAILY CHART

As always, Trade Happy and Trade Smart

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