Stocks struggle on Friday, but finish another week with gains. The Market got an early lift from a couple of tech heavyweights on Friday morning, but wasn't able to keep the upward momentum going. Stocks were held back by selling in healthcare stocks and a slight drop in consumer confidence numbers.  

On the economic front, personal income remained flat but spending picked up in July. Analysts were expecting a 0.1% increase in income last month, but the government reported no such thing when it said income remained flat for the month. But there was an uptick in spending thanks to the government's cash for clunkers program. This helped spending increase 0.2% last month. This comes one month after spending fell by 0.2% in June. 

Graphic from Briefing.com

There was also a slight bump upward in the consumer sentiment, according to the University of Michigan/Reuters report. Friday's reading increased the earlier reading of 63.2 up to 65.7. While this was certainly a positive revision, keep in mind that July's number was slightly better at 66.0.

Graphic from Briefing.com

Oil held firm in the $70 a barrel territory last week. On Friday, it moved up another $0.25 and finished the week at $72.74 a barrel on the New York Mercantile Exchange. Oil traders were betting that an increase in consumer spending meant that perhaps we're getting closer to an economic recovery. With the demand for oil remaining low, it's the economic indicators that have been pushing the price of crude higher.

Keep in mind that a possible recovery also will bring the idea of inflation back into the forefront. This is what kept gold moving north on Friday when it jumped $11.50 to finish the week at $958.80 an ounce.

Friday's Economic Reports

The Dow Jones Industrial Average broke its winning streak on Friday when it tumbled 36 points to finish the week at 9,544. However, it still managed to climb 0.40% over the last five trading days. But after the huge run-up the week prior, the large-cap index appears to be stuck in a trading range. Let's keep a close eye on its nearest support and resistance on the daily chart because a break out of this pattern could be a significant move in either direction.  

The S&P 500 also spent last week drifting sideways. On Friday, it dropped a mere 2 points on the session. But it was able to gain 0.27% on the week, taking the index up to 1,028 points. Let's keep a close eye on the S&P 500's current trading range because, just like in the Dow, a break out of this pattern will likely be an exciting move.  

The Nasdaq Composite jumped higher on Friday's open, but then encountered plenty of selling as the day wore on. It finished the day up only one point when the closing bell rang. However, it still managed to finish the week with a 0.39% gain with the index settling at 2,028 points. Friday's move certainly took the tech-laden index out of last week's trading range with its big move at the opening bell. However, the way it finished the session left plenty of doubts heading into this week. Let's keep a close eye on the support at 2,020 points for any break below this level. At the same time, we should watch resistance near Friday's high around the 2,060 point level for a re-test of this level this week.  

Although there was plenty of intraday volatility last week, the end result was very little movement for the VIX. On Friday it moved up 0.08 of a point to settle at 24.76 points on Friday's close. We'll continue to watch its 20-day moving average (light blue line) and 50-day moving average (red line) for key resistance levels on the chart. A break above these lines could pose problems for the current rally.

Although it's been rough sailing for getting fills so far this cycle, we have been able to get filled in two spreads so far. The MNX has just been out of our reach all week, but we were able to get into the RUT and OEX spreads without any problems. For now, both of those positions appear to be working out as planned.

We've talked a lot about our concern that a pull-back could be coming and we want to continue to use caution with our entries. Let's keep our spreads very conservative just in case this plays out this cycle. After all, September is the most bearish month of the year. But usually, it's the week after expiration that's the most dangerous.

But even with this anxiety about a retracement, the current Market rally shows that the risk is on the upside. With so many of the Market participants remaining bullish, it's hard to find any traders playing from the "short" side these days. It's kind of like when everyone moves to the same side of the boat.......these are the times to be cautious. So let's remain cautious with our new spreads and not get too worked up when it's difficult to get fills. At the same time, if we do get a hint that we're headed lower, we're going to be ready to make these spreads into iron condors and profit on both sides of the index/equity.

For tomorrow, we're going to move the "short" strike prices up a bit for the MNX. This is going to turn the trade into a 10-point spread, but we're still going to leave our credit higher than where it's currently trading. Due to this, we're going to need a move lower to get filled. As we said earlier, let's be cautious and let the spread come to us. We want to get paid well to take on the risk but we feel this could be a very good safe spread for us this month. Let's continue to use patience and see if we can get this one on Monday.

NEW TRADE ALERT (1)

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

MINI-NASDAQ 100 INDEX (MNX)

OPENING 152.50-142.50 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 152.50 strike price

Buy 15 September Puts at 142.50 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 the index reaches $155.00.

MNX DAILY CHART

CURRENT SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 07/24/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $515.00

Just like the major indices, the RUT spent last week drifting sideways. After hitting the upper end of this range on Friday, the index reversed sharply and finished the session down $3.91 at $579.86. For the week, it gave up one point over the five sessions. With a cushion of 70 points in our put spread, we're sitting in great shape. As long as it doesn't start falling through the support levels on the chart, we don't have anything to worry about.

OEX 450-445 BULL PUT SPREAD (15 Contracts entered on 07/27/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $452.50

The OEX also took off like a rocket on Friday and tested the resistance level at the top of its recent trading range. Unfortunately, it fell once it hit this area and finished the trading day down $1.53 at $477.75. But even with this set-back, we still had a good week in this put spread. With the index now sitting 27 points above our "short" strike price, we like this spread. Let's just sit back and see where the OEX decides to go from here.

As always, Trade Happy and Trade Smart

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We got the volatility that we were looking for, but it only led to one fill. Unfortunately, we're still working on the entry for our MNX put spread. Let's keep our patience because another wild morning like we saw today would go a long ways towards getting filled. With this in mind, let's keep this trade the same for tomorrow and see if we can get into this position heading into the weekend.

NEW TRADE ALERT (1)

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

MINI-NASDAQ 100 INDEX (MNX)

OPENING 150-145 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 150 strike price

Buy 15 September Puts at 145 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 the index reaches $152.50.

As always, Trade Happy and Trade Smart

The economic data took a big step forward, but stocks sputtered. During the recent rally, the Market has ignored any bad news and only focused on the positive data. But with all the data pointing to the upside in today's session, there was little buying in sight. While there was some green showing up off and on throughout the day, it wasn't nearly the bullishness that one would expect considering the economic data. By the time the closing bell rang, the indices were once again barely into the green, extending the Dow's winning streak to seven days and matching its longest winning streak of the year.

The good news started this morning with a huge spike in the durable goods report. According to the Commerce Department, durable goods orders increased by the largest amount in over two years during the month of July. The increase in manufacturing was due to a bump up in auto and aircraft orders. July's increase of 4.9% was not only the third increase in the past four months, it was also much better than any analysts were expecting. Although the headline number was fantastic, if you take away the big-ticket items such as transportation, the data did not live up to the Street's expectations with its 0.8% increase. Regardless, the durable goods report should have pleased traders and economists alike.

Graphic from Briefing.com

There was more good news for the housing market this morning when new home sales jumped for the fourth straight month. The Commerce Department announced that sales spiked by 9.6% in July, easily outpacing expectations. The new seasonally adjusted annual rate has increased to 433,000 in July from a level of 395,000 in June. However, the trade-off for the rise in sales was a drop in prices. The median sales prices dropped slightly from June but remain off nearly 12% from last year at this time. While the uptick in sales is encouraging, let's not forget just how depressed these levels are on an historical basis. The chart below puts this in perspective.

Graphic from Briefing.com

For some time now, we've been talking about the weak demand for oil and that showed up again in the weekly Energy Information Administration's inventory report. Today's data showed an increase of 200,000 barrels last week, which is definitely bearish for oil considering that the Street was looking for a drawdown of 2.7 million barrels during the same time period. Oil finished the session down $0.62 at $71.43 a barrel on the New York Mercantile Exchange. At the same time, the EIA announced a 1.7 million drop in gasoline supplies last week. This should put some downward pressure on the price at the pump.

Today's Economic Reports

The Dow Jones Industrial Average has been able to make strong moves to the upside in intraday trading this week, but has had a hard time holding on to those gains at the close. Today was another perfect example of the large-cap index barely holding in green territory at the closing bell. Normally, this would signal lack of conviction in the bullish sentiment. But this rally hasn't stalled yet. The Dow closed up 4 points today at 9,543, which puts the index at its highest level since November of last year.

The S&P 500 also squeaked out a gain at today's close with its 0.12 of a point positive finish. This puts the index at 1,028 and marks its highest level since October of last year. Similar to the other indices, there has been plenty of indecision this week with the S&P 500 giving us candles with long shadows and very small bodies. Until this changes, the index will be stuck in this area.

The Nasdaq Composite also barely finished in positive territory today with its 0.20 of a point gain, taking it up to 2,024. On the daily chart we're seeing some resistance above Tuesday's high while the Nasdaq is also finding a little support from the old resistance level on the chart. Let's look for a break out of this range, which could signal a large move in either direction.

All of the volatility on Tuesday gave us a very large candle on the daily chart of the VIX. Today's trading wasn't nearly as wild, which caused the VIX to move up a mere 0.03 of a point to 24.95. It appears to be bumping up against its 20-day moving average (light blue line) on the chart. Let's see if it can stay below this moving average. A break above it would mean trouble for the Market. However, a break above its 50-day moving average (red line) would be much more problematic.

It's been a little tough for fills this week. Although we got into our RUT put spread right away on Monday, the MNX has been a little more difficult. We've been waiting for a pull-back in the Market, but it just hasn't happened. We're getting the intraday selling and some red candles, but it really hasn't amounted to much.

Remember, it's not the news itself that's important; it's the Street's reaction to the news that's meaningful. We talk about this a lot, but just think about that for a minute! Throw the fundamentals and technicals out the window because these days it's all about psychology.

While we've been feeling like a retracement is around the corner, the Market just hasn't given much back at all. With this in mind, we definitely don't want to step in front of this Market with a call spread no matter how irrational we might believe that to be. At the same time, we want to be very cautious with our put spreads and make sure they are at very conservative levels. This way, if we do get some profit-taking, we still should be safe at our strike prices.

With this mentality, it's very important for us to continue to use a great deal of patience on the way into spreads. For now, let's continue to throw our MNX spread out there with a Day Order and see if we get a snag in tomorrow's trading. We also want to come back with another put spread on the OEX. The best performing spreads during our winning streak has been with the index spreads and we believe this one is setting up for another very good entry.

With another big initial claims report and the GDP figures set to be released, it could lead to a lot of volatility in Thursday's session. Let's take advantage of this opportunity with these two put spreads.

NEW TRADE ALERT (2)

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

MINI-NASDAQ 100 INDEX (MNX)

OPENING 150-145 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 150 strike price

Buy 15 September Puts at 145 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 the index reaches $152.50.

S&P 100 INDEX (OEX)

OPENING 450-445 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 450 strike price

Buy 15 September Puts at 445 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $452.50.

MNX DAILY CHART

OEX DAILY CHART

CURRENT SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 07/24/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $515.00

The pull-back first thing Monday morning did turn out good for our RUT entry. We were able to get filled right away with a very good credit in this spread. Since then, the index has been able to move higher over the next two sessions. In today's action, it climbed 0.80 of a point and closed at $584.02. Similar to the other major indices, we are seeing a great deal of indecision in this index as well. But like we said on Sunday, if it decides to rollover, we'll come back with a call spread and make this one into an iron condor. But for now, we're sitting in great shape with a cushion of nearly 75 points in this one.

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 thought things were finally going our way at the end of the session, but the selling wasn't quite enough to get our trade alert filled. However, the late selling certainly points to a move to the downside. With this in mind, let's remain firm in our trade alert and see if we get enough of a pullback to get our spread filled.

NEW TRADE ALERT (1)

Please Note: This is a Day Order and Limit Order and only applies to those members not already filled in this spread.

MINI-NASDAQ 100 INDEX (MNX)

OPENING 150-145 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 150 strike price

Buy 15 September Puts at 145 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 $152.50.

As always, Trade Happy and Trade Smart

The volatility helped us go one for two in our new trades. Let's use a little patience and keep our alert the same for tomorrow. If we continue to get plenty of intraday movement, it will definitely help us with the fills.

NEW TRADE ALERT (1)

Please Note: This is a Day Order and Limit Order and only applies to those members not already filled in this spread.

MINI-NASDAQ 100 INDEX (MNX)

OPENING 150-145 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 150 strike price

Buy 15 September Puts at 145 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 $152.50.

As always, Trade Happy and Trade Smart

Sweet talk from the Fed and a jump in housing numbers helped push the Market higher on Friday. Stocks climbed for the fourth straight session, pushing the indices into the nose-bleed section with the indices hitting their highest level of the year. Although we didn't need the big move to the upside this week, it did help us sit back and relax as our spreads all went out worthless on Friday, capping our 10th consecutive profitable month!

Stocks were flying high after the National Association of Realtors reported the largest monthly increase in home sales in over 10 years. The data showed a jump of 7.2% in July with first-time home buyers taking advantage of the government's tax credit. The strong housing numbers surprised traders and helped ignite another bull-run after the release.

The Street was still enamored with talk from Federal Reserve Chairman Bernanke who said that the economy is nearing a recovery. However, he did mention that unemployment was likely to stay high and the recovery will be slow. Although the Fed chief seemed to be applying for a second term with his rosy outlook, keep in mind that the initial unemployment claims have been climbing precipitously once again.

Crude continued to climb on Friday, hitting a new high for 2009. It traded just shy of $75 a barrel intraday, but finished the session at $73.89 a barrel on the New York Mercantile Exchange. Although oil remains less than half of where it was a year ago at this time, Friday's gain of $0.98 continues its bullish run of late, despite the weakness in demand and the global economy. Remember, oil will be one of the first things to move higher when the economy starts to recover and some are wondering if this is the bullish signal we're seeing now. We definitely doubt this possibility, but it's hard to bet against this trend.

Friday's Economic Reports

After starting the week slowly last Monday, the Dow Jones Industrial Average caught fire over the next four trading days with a 4.06% advance. The large-cap index capped off the run with a 155 point gain, taking it up to 9,505. We were quite concerned after Monday's tumble when the Dow took out the low from its recent trading range. However, it fired right back taking out the resistance from the last swing high and finished the week at a new high for the year.    

The S&P 500 also looked like it was in trouble after its rough start last week, but then the bulls came roaring and pushed the index higher. It capped off the run on Friday with an 18 point gain, helping the S&P 500 finish at 1,026. This took the index right through the resistance from its recent trading range on the chart.

The Nasdaq Composite didn't miss out on the rally last week. It surged another 31 points on Friday, taking the index up to 2,020 points. Similar to the other major indices, the Nasdaq's Friday rally took it through the resistance from its recent trading range. We'll have to wait until Monday to see if it can continue this upward momentum.

The four-day rally last week took its toll on the VIX, dropping the index on the week. On Friday, it was much lower but finished the session down only 0.08 of a point at 25.01. The key for us is that the VIX is now back below its 50-day moving average (red line) on the chart. Let's keep a close eye on this level this week.

It turned out to be another easy expiration week for us. The Market surged higher and our remaining spreads all went out worthless on Friday's expiration. Our only regret was the sharp downturn in AZO that caused us to lose a big chunk of our profit this month. But as we often say, that's all part of trading. It was the smart play at the time and we can't regret the risk management strategy of shutting down losing spreads early. Keeping those losses small has enabled us to make it 10 months in a row of walking away with profits.

While we would have liked a bigger percentage of return the last couple of months, let's not dwell on what could have or should have been. Instead, let's pat ourselves on the back for another job well done. With that said, let's go ahead and add up the totals for the month.

CLOSED/EXPIRED AUGUST SPREADS

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

Profit of $40.00 per contract

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

Profit of $40.00 per contract

RUT 490-480 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit of $45.00 per contract

OEX 420-415 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit of $40.00 per contract

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

Original credit of $40.00 per contract

Cost to close-out trade of $123.00 per contract

Loss on trade of $83.00 per contract

With another month now on the books, we're only two profitable months away from hitting our goal of 12 straight profitable months. There's only one way to get there and that's by trading so let's get to work on month number 11, September.

We've talked a lot in the last few weeks about our feeling that we're primed for a large pull-back in the Market. But we just haven't seen this play out. Instead, traders seem to be looking past any negative reports and instead focusing on the glass half full. So, even though we're extremely skeptical of this rally, we just can't fight the trend. However, we can take it slow this month and that's just what we're going to do.

We're going to start with just a couple of very safe spreads for September by going back to our secure index spreads. We've had one heck of a winning streak in the RUT and MNX and we're going to continue it this month. By placing our strike prices fairly far out of the money, we might be giving up some premium, but we're going to be pretty safe at the same time. After all, what price can you put on good sleep at night? We're going to start with put spreads, but be ready to come back and make them into iron condors if we start to see some deterioration in the Market. We might need to be flexible this month, but we know this heading into September. With this in mind, let's get things going with the following new trade alert.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders.

RUSSELL 2000 INDEX (RUT)

OPENING 510-500 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 510 strike price

Buy 15 September Puts at 500 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $515.00.

MINI-NASDAQ 100 INDEX (MNX)

OPENING 150-145 SEPTEMBER BULL PUT SPREAD (15 contracts)

Sell 15 September Puts at 150 strike price

Buy 15 September Puts at 145 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 $152.50.

RUT DAILY CHART

MNX 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?

Stocks move higher on an energy bounce--but with light volume. After gapping lower at the open due to concerns out of Asia, a mid-morning energy rally helped take stocks higher. Although there was an afternoon round of selling, the indices were able to cling to some solid gains at the close. However, the light trading volume continues to plague the rally with conviction starting to show signs of diminishing.

Concerns over weakness in China have plagued the Market this week. In yesterday's trading, the Shanghai Composite slipped 5%, reaching the "Bear Market" threshold. With the Shanghai Composite falling 20% since its peak just a few weeks ago, there is fear that global weakness might stall the U.S. rally. This turned up the selling pressure on Monday and then returned this morning in pre-Market trading.

But after an opening gap to the downside, a bullish move the in the energy sector helped fuel a rally that took stocks into the green near mid-day. There was some skepticism early in the afternoon that wiped out some of the gains on the session, but a strong finished helped stocks post some nice advances on the session. The problem with the rally is that volume is fairly sparse with only 988.3 million shares changing hands. Of course, it's the middle of August, which is usually when we see the lower liquidity in the Market. 

In corporate news, the Street was still dissecting earnings data from the world's largest computer company, Hewlett-Packard. The company reported weaker sales, but beat estimates on the earnings front. In another earnings report, Deere & Co. announced a 27% pull-back in its third-quarter profit due to weak global demand. The company also lowered its forecast for 2009 but did reconfirm its projected profit of $1.1 billion. The news sent its stock lower in today's trading.

Oil got a shot in the arm this morning when the Energy Information Administration reported a larger than expected drop in supplies. The government agency surprised the oil market with 8.4 million barrel decline in U.S. supplies. The Street was expecting an increase of 1.3 million barrels last week. This announcement sent the price of oil skyrocketing to over $71 a barrel shortly after the release. Crude finished the day up $3.23 at $72.42 a barrel on the New York Mercantile Exchange.  

Today's Economic Reports

The Dow Jones Industrial Average broke through a very important support level on Monday. However, it bounced right back above it on Tuesday and then continued 61 points higher in today's session. It now sits back in the middle of its old trading range at 9,279 points. Let's continue to watch this old support from its recent trading range but then also keep a close eye on Monday's low on the chart. Although we don't expect any substantial moves ahead of expiration, we are concerned about the pull-back that has been looming for weeks now.     

The S&P 500 also sliced right through the bottom of its trading range on Monday's wicked sell-off. However, after the strong buying yesterday and the added 6 points in today's session, now the S&P 500 is back above this old support level with today's closing price of 996. The rest of the week, let's watch Monday's low near 980 points along with how it trades along its 20-day moving average (light blue line) on the chart. If we do get a larger sell-off, we think the first real test will come once the index reaches 970 points on the chart.  

The Nasdaq Composite led the way lower on Monday's session when it opened the day below two very strong support levels. However, after two strong trading days in a row, the tech-laden index is now above them at 1,969. If the index continues to climb, let's see how it handles its 20-day moving average (light blue line) when it comes into contact with it once again. On the downside, we're keeping a close eye on its rising 50-day moving average (red line).

Monday's huge sell-off pushed the VIX back above its 50-day moving average (red line). However, the next two trading days had this index flying all over the place. By the end of today's trading, the VIX had inched up 0.08 of a point to close at 26.26. Let's keep a close eye on how this index finishes the week because a continued rally in the VIX could signal big problems for the Market while a sell-off in the "fear index" would be good news for the bulls.

The volatility has been turned up a notch this week. While the trading has been a little whipsaw in nature, it really plays well for our current spreads heading into expiration on Friday. Our goal was to avoid several days of stocks trending lower and we believe we've succeeded in that.

At the same time, we really don't want to see a big move to the upside. That's because we'll be entering new spreads next week and there's not much worse than getting a big move before we come in with new spreads.

We've been leaning more bearish as of late, especially after Monday's wicked sell-off. With China now showing signs of weakness and few catalysts to drive our Market higher, we wouldn't be surprised to see a decent retracement in the near-term. On the charts, the indices all were in a consolidation pattern and then broke out of them to the downside on Monday. Although we got a little recovery, we would not be bullish at this point. Especially considering the strong run we've had over the past several months.

But even with that said, let's not let our anticipation get the best of us. We need to be disciplined traders and not force bearish trades. Instead, we need to keep these emotions in check until we get more confirmation to the downside.

With plenty of money on the sidelines, there's still plenty of risk of another fast and furious move to the upside. There's a lot of talk on the Street about money managers who missed the recent rally and can't afford to miss the next one. With this in mind, there's still plenty of risk to the upside if there's no follow-through to Monday's sell-off.

This is our dilemma for next month. But with a few more days left before we need to make those decisions, let's just take a look at how we're sitting heading into the final two sessions of this cycle.

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 fell through the bottom of its trading range on Monday morning along with its 20-day moving average (light blue line). However, it rebounded on Tuesday and then climbed another $1.01 in today's trading to finish at $159.66. While we're still very concerned about the current rally in the index, we're not worried about our put spread. We should be able to sit back and coast to the finish line in this position.

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 also took a beating on Monday, but has been able to get back some of those gains in the past two sessions. In today's trading, it climbed 0.60 of a point and finished the day at $164.60. This helped the stock get back above its 20-day moving average while giving us nearly 20 points of breathing room with only two trading days left in the August option cycle. We're almost home free in this one.

RUT 490-480 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $495.00

The RUT wasn't able to avoid the bloodletting on Monday. It tumbled at the open, breaking below the support from its trading range along with taking out its 20-day moving average (light blue line). However, it was able to move back above both of these levels in today's trading with its gain of $5.22. With the RUT now at $561.65, we have a comfortable cushion of over 70 points in this one with only one full trading day left.

OEX 420-415 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $422.50

Just like the rest of the major indices, the OEX fell out of its trading range on Monday, but has since been able to climb out of that hole. It advanced $3.36 in today's session and moved back above its 20-day moving average (light blue line) to $462.98. This leaves the OEX nearly 43 points above our "short" strike price with time running out in this one.

CLOSED AUGUST SPREADS

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

Original credit of $40.00 per contract

Cost to close-out trade of $123.00 per contract

Loss on trade of $83.00 per contract

As always, Trade Happy and Trade Smart

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Wavering among consumers sent stocks lower on Friday and broke the Market's four-week winning streak. Friday morning's reading on consumer sentiment showed a surprising decline, which helped fuel a sell-off. While most stocks were able to pare some of those losses by the time the closing bell rang, it was still fairly red across the board.

Although there was other economic data released on the day, it was the consumer sentiment that seemed to rile the traders. Heading into the release, the Street was looking for a number of 68.5, which would have been an improvement from July's 66. Instead, the data showed a drop to 63.2 in August, which showed plenty of weakness in the minds of consumers. While there is usually very little correlation between sentiment and consumer spending, a drop was definitely not expected. With two-thirds of the U.S. economy relying on the consumer, it's easy to see why this number could spook traders. We'll have to wait to see if there's any movement in this number when we get the next report in two weeks.

Graphic from Briefing.com

Earlier in the day, before the opening bell, the government released the latest reading on inflation in the Consumer Price Index. According to the Labor Department, consumer prices remained unchanged from June to July. Also in the report, core CPI (excludes food and energy) climbed .1% in July. The graphic below shows how core CPI has remained relatively steady throughout the recession but CPI remains well below levels preceding the recession. 

Graphic from Briefing.com

In the past, the Street was extremely concerned about the CPI report because of the Federal Reserve's reaction to rising inflation rates. But with inflation remaining in check, we haven't paid that much attention to this report recently. However, once there is a recovery underway in the economy, this data will once again become very important because any rise would signal a possible increase in the federal funds rate and money supply. When those days come, these reports will once again become extremely important to dissect.

Oil finally backed off on Friday after another run to the upside. This didn't help energy stocks with crude slipping $3.01 to $67.51 a barrel on the New York Mercantile Exchange.

Friday's Economic Reports

The Dow Jones Industrial Average was able to fight its way off its low on Friday, but still finished the session down 76 points at 9,321. However, this caused the large-cap index to tumble 48 points on the week, snapping its four-week winning streak. On the chart, the index spent last week drifting sideways between its nearest support and resistance levels. Let's keep a close eye on both of these lines this week in anticipation of a break out of this range. If the index does move out of this range, it could be a substantial move.    

The S&P 500 also was able to finish the session well off its low, but still lost 8 points on the session. However, it was able to close above 1,000 points at 1,004. Similar to the other indices, the S&P 500 has been moving along in a consolidation pattern on the chart. We'll be watching for a break out of this pattern but it should be a big move when it happens.

The Nasdaq Composite also turned in a losing performance last week with its 23 point decline on Friday. The index finished the week at 1,985 but remains in its sideways pattern on the chart. We'll be keeping an eye on the nearest support and resistance levels, just like the other two indices, but we'll also be watching its rising 20-day moving average (light blue line). This could make things even more interesting this week.

The last three trading days of the week helped push the VIX lower. On Friday, it shed 0.44 of a point and finished the week back below its 20-day moving average (light blue line) at 24.27 points. If the Market can rally, we should see this index continue to lose ground.

It was an ugly turn of events on Thursday, when AZO took a nose-dive at the open. The stock took a beating when an analyst downgraded the rating on the stock and gave it a new price target of $142. It didn't take long for the stock to take out that number on its way down to $141. Although it didn't drop to our "short" strike price, it did hit our exit trigger price and caused us to close out our spread with a loss. While it's extremely painful to take any loss, we can't think of too many trading strategies where you can have the stock move over 6% against you in one session and still get out of the trade without losing your shirt.

Unfortunately, things like this are always going to happen. That's why we try to pick the most conservative strike prices possible and leave ourselves the opportunity to ride out short-term moves against us. But like trading in general, things are not always going to go in our favor. The key is to keep those losses small so we can still walk away with a little money in our pockets even when things blow-up. Of course, AZO just likes to throw salt on the wound by bouncing sharply in the area of $141 and then moving higher. However, we're still not convinced that it's going to be able to maintain at its 200-day moving average (black line) the rest of the week. Only time will tell.

To put things in a little better perspective, remember that the last three months we've had one spread turn against us in each option cycle. While the profit totals haven't been huge, we like the fact that we've been able to still finish the month with a profit even with the run of bad luck. We're always going to hit rough patches like this once in a while, but the fact we've still been able to turn a profit during this run is something that we shouldn't take lightly. With that in mind, let's keep our heads held high and refocus our attention on making it to the finish line with the rest of our spreads intact. For now, let's take a look at each of them in more detail to see how we're sitting heading down the home stretch.

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 dropped to its nearest support level in the area of $140 on Friday before bouncing nicely. It also bumped into its 20-day moving average (light blue line) in this same area. The good news is that it was able to finish well off this low. The bad news is that it still dropped $1.71 on the trading day and remains in the middle of its trading range. Heading into the final week of the August option cycle, we remain in very good shape with the index sitting at $161.16. For now, let's just sit back and see how the trading plays out at the beginning of the week.     

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

Despite some problems last week, Apple was still able to move higher. On Friday, it gave back $1.64 but was able to finish the week at $166.78. With the stock sitting more than 20 points above our "short" strike price heading into the final five trading days, we're not going to get too concerned unless we see any dramatic company-specific event take place. Barring this, it should be a relatively easy week in this spread.

RUT 490-480 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $495.00

Similar to the major indices, the RUT was hit with heavy selling on Friday. While it was also able to reverse from its low of the session, it wasn't able to make back as much by the time the closing bell rang. The small-cap index still lost $11.29 on the day and finished at $563.90. Also similar to the major indices, the RUT remains in a trading range. But just like our other spreads, we're sitting in great shape in this spread with a cushion of over 60 points and only four full-trading days left in this spread.

OEX 420-415 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $422.50

The OEX looked like it was heading dramatically lower on Friday before the reversal came. By the time the closing bell rang, it was only down $2.96 at $466.22. This gives us 46 points of breathing room heading into expiration week. With so many strong support levels on the chart between our put spread and the index, we should be able to sleep easy this week without any concerns in this position.

CLOSED AUGUST SPREADS

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

Original credit of $40.00 per contract

Cost to close-out trade of $123.00 per contract

Loss on trade of $83.00 per contract

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?

AutoZone fell to our trigger price this morning, causing us to stick to our trading plan. Please find the trading alert below.

TRADE ALERT for Income Spread Trader -

Reg. Members & Pro Trader

AutoZone Inc. (AZO)

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

Buy 15 August Puts at 140 strike price (puts we previously sold)

Sell 15 August Puts at 135 strike price (puts we previously bought)

We suggest using a Market Order to get filled quickly.

Fed delivers an optimistic policy statement and the Market roars. Stocks were already flying high this morning with traders looking for an improving report from the Federal Reserve. The committee threw some fuel on the bullish fire today when the statement mentioned signs that the economic slide has subsided. After a little time of dissecting the statement, stocks flew to the upside during the final two hours of the trading session, posting strong gains across the board. That was until the last thirty minutes of the session, which were full of profit taking. By the time the closing bell rang, stocks had given back almost half, but still finished the session with solid gains.  

There's been plenty of anticipation so far this week leading up to the Federal Reserve's policy statement. Ahead of this afternoon's report, the bulls took control of the session, pushing the Dow Jones Industrial Average into a triple digit gain early in the session.

The release of the FOMC statement didn't appear to disappoint with the policymakers showing a great deal of confidence in the economy. The members stated that the economic activity appears to be leveling out. At the same time, the committee said that it will keep the federal funds rate near its current historic low, near zero. The Street liked the fact that the committee plans on keeping it there for an extended period. The statement also mentioned that the FOMC expects inflation to remain subdued for some time. This was reassuring to a lot of analysts who are concerned that an economic recovery will bring a brutal round of inflation with it.

Also in the release, the Federal Reserve noted that its program of buying $300 billion of Treasury securities will be coming to an end in October. Previously, the Central Bank had planned on finishing the program a month earlier, in September. To date, the Fed has purchased $253 billion of the securities.

In one of the lone economic reports this morning, the U.S. Commerce Department reported that the trade deficit rose 4% to $27 billion in June. This was up from May's historic low deficit level and was also the first increase in imports in nearly a year. Today's report suggests that the U.S. economy is showing signs of a recovery as consumers start to recover, according to economists. However, we like to point out that this is really just a small move in the right direction and time will tell whether it's a trend reversal or just a one-month wonder.

Graphic from Briefing.com

It was another week of rising crude supplies with the government announcing a big jump last week. This morning's weekly Energy Information Administration's report showed a larger than expected rise of 2.52 million barrels. The Street was looking for an increase of 1.2 million barrels. At the same time, gasoline supplies fell by 1 million barrels last week, less than the 1.7 million barrels that analysts had predicted. Despite the build in crude supplies, oil climbed $0.71 on the day, settling at $70.16 a barrel on the New York Mercantile Exchange.

In a survey released by the National Association of Realtors today, the median home prices climbed 4% in the second quarter of 2009. The median home sales increased from $167,300 in the first quarter of the year to $174,100 in the second quarter.

Today's Economic Reports

The Dow Jones Industrial Average took off like a rocket this morning just after the opening bell rang. After moving even higher at the FOMC meeting, the last half hour put the brakes on the bulls. While the Dow wasn't able to hold onto all of its gains, it did finish the session up 120 points at 9,361. This 1.30% move helped the index move back towards the upper end of its weekly trading range. Let's watch to see if it's able to add to these gains the rest of the week. On the downside, let's keep a close eye on its new support level at 9,200.  

The S&P 500 also turned in a solid performance on the day, moving back above the key 1,000 point level. The strong momentum in financial stocks helped push the S&P 500 up 11.46 points, where it closed at 1,005. Today's low in the index was very close to where the index bottomed out in yesterday's action. Let's continue to watch this area for support the rest of the week. On the upside, we're going to be looking to see if the index can take out last Friday's high on the chart. A break in either direction through these barriers would signal a big move for the S&P 500.

The Nasdaq Composite looked as if it was going to break through last week's high on the daily chart and push to a new high for the year. However, the last half hour of the session wiped away these thoughts and left the tech-laden index off its high at the close. Despite this, it still led the other two major indices on the day with its 1.47% advance. The Nasdaq finished the day up 28 points at 1,998. Let's watch today's high the rest of the week for any thoughts of a breakout to the upside. On the downside, let's see if the Nasdaq can hold above its 20-day moving average (light blue line) if there's any weakness during the next two sessions.

After breaking above its 20-day moving average (light blue line) in yesterday's session, the VIX took a step back in today's trading. It fell 0.54 of a point and finished the day at 25.45 points. For the bulls, they want the index to remain below its 50-day moving average (red line) on the chart. Any break above this would bring back the anxiety that has been absent since the spring.

Heading into this week, we had one big concern on our mind.......AZO. Monday's trading only intensified our worries about this position when the stock dropped like a rock. But after that rough start to the week, our AZO spread has bounced-back nicely. With the pace of the cash-for-clunkers program slowing down, we've seen a little lift in the stock. With this spread, we're taking it session by session because there's still an awful lot of time remaining until expiration.

The rest of our spreads are holding up just fine. Remember, with our style of trading, there's no need to get concerned about one or two negative sessions. It's only if we get a major trend against us that we're going to run into trouble. That's because we have plenty of cushions in the rest of our spreads just in case we get a few of those rainy days in a row. With no immediate concerns about any of them, let's just take a look at how much breathing room we have in each individual spread heading into the final week and a half of the August option cycle.

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 fell to its rising 20-day moving average (light blue line) in yesterday's session with all of the selling in tech stocks. It opened the session just above this line this morning before taking off to the upside. It climbed 2.49 points, closing at $161.96. This moves the index back towards the upper end of its trading range and strengthens the support at $159 on the daily chart. We currently are sitting in very good shape in this spread with a safety net of nearly15 points and not a lot of time remaining.    

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

As we said above, our main concern heading into this week was our AZO put spread. Unfortunately, the heat was turned up on this spread during Monday's sell-off. However, to our delight, the stock found some strength in yesterday's session and got back some of those losses. It appeared to be adding to those gains nicely for most of today's session. But a late-day sell-off wiped away those gains and left the stock down $0.26 at the close. With AZO now sitting at $148.49, we still have a decent amount of breathing room in our put spread. But with the volatility this one has been showing us lately, we feel anything but secure with seven trading days remaining. For now, let's keep our stops tight at $142.50 and not get too concerned because our trading plan is in place. If we do get taken out of this one early, we shouldn't get hurt too badly.

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

Our Apple looks much better after today's bullish move. We were getting a little concerned that the stock might be moving lower to fill in its most recent gap, but today's reversal moved the stock up $2.48 and put Apple back in the middle of its recent trading range at $165.31. With several strong support levels and moving averages sitting between the stock and our "short" strike price, we seem to be in great shape in this spread.

RUT 490-480 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $495.00

We often talk about our love for consolidation when spread trading. That's because we're the sellers of volatility and profit even more when the stock/index doesn't move. We like to sell high volatility and then watch the premiums dry up, which causes the values of the options to drop even faster. On RUT's daily chart, we're seeing just that. The index appears to be drifting sideways between 560 and 580. Until it breaks out of this range in either direction, we're not going to get too excited. Actually, with the size of cushion that we have in this position, we're probably not going to be worried even if it's a break to the downside. For now, let's just sit back and enjoy the ride in this one.

OEX 420-415 AUGUST BULL PUT SPREAD (15 Contracts entered on 07/29/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $422.50

After yesterday's big red candle in the OEX, we figured there would probably be some carry through to the downside in today's session. But that's not what we saw. Instead, the index rallied $4.87 and finished the day at $466.17. This pushes the OEX 46 points higher than our put spread with not a lot of time remaining in this one. It's another one that should be able to coast to the finish line without too many concerns.

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?