Stocks gave us a little more excitement today, but the come-back in the afternoon helped pare a majority of the losses. The abundance of economic reports released in today's session gave the Street plenty of data to dissect and also gave trading plenty of turbulence. But the rally helped erase the big losses that we encountered this morning and helped take the sting out of the red session, ending the third quarter.

The second quarter Gross Domestic Product (GDP) wasn't quite as painful as the Street was expecting this morning. According to the Commerce Department, the country's economic activity was declining by 0.7% from April to June. This was better than the 1% drop that economists were expecting and also much better than the 5.4% drop reported in the first quarter of 2009. Keep in mind that the GDP represents the value of all the goods and services produced in the country and if consumers aren't purchasing, it's kind of hard to keep this number moving higher.

Graphic from Briefing.com

While this morning's GDP number was definitely a positive sign, the update from ADP was anything but optimistic. The payroll report that tracks private sector jobs showed a drop of 254,000 jobs last month. This was dramatically higher than the loss of 200,000 that the Street was expecting. Of course, there was a bit of good news in the release when the company revised its previous report from a loss of 298,000 jobs to now show only 277,000 jobs were lost in August.

Regardless, it was still a very large number that hasn't changed much in September. Remember that the Street uses this report as a forecaster for the more important non-farm payroll report that comes out on Friday. Based on today's announcement, it doesn't bode well for Friday.

A few hours after the opening bell, the release of the Chicago Purchasing Managers Index (PMI) gave the Market a quick haircut. Stocks rolled over hard after the regional economic gauge showed a surprising drop in the index. Ahead of the release, analysts were expecting a rise in the index up to the 52.0 level. But instead, the index dropped to 46.1 last month as companies remain in a defensive mode.

Although this is considered just a regional report showing the economic conditions of the Midwest, many rely on this as a precursor to the more important index from the Institute of Supply Management that comes out on Thursday. Based on today's release, let's not look for anything too optimistic tomorrow.

Oil got a shot in the arm today when the Energy Information Administration released its weekly inventory report. According to the government, the country's stockpile of crude fell unexpectedly last week. This caused the price of oil to rise $3.90 on the session to settle at $70.61 a barrel on the New York Mercantile Exchange. At the same time, gasoline supplies shed 0.8% last week, which should help push up the price at the pump.

Commodities had a pretty good run across the board today. Gold pushed higher with a gain of $14.90 to end the session back above $1,000 a troy ounce at $1,008. The metal was helped by a pull-back in the dollar.

Today's Economic Reports

The Dow Jones Industrial Average fell nearly 30 points today, but that wasn't too bad considering the large-cap index was down well over 100 points earlier in the day. The index finished the day down 0.3% at 9,712 points. While it hasn't been pretty this week, the index closed out the third quarter up 15% for the time period. Now, that's pretty exciting if you're a bull.

The S&P 500 dropped 3.67 points on the day, but similar to the Dow, this wasn't too bad considering how ugly things were earlier in the session. This amounted to a 0.4% loss for the S&P 500 and leaves the index sitting at 1,056 points heading into the final two trading days of the week.

The Nasdaq Composite followed suit today when it gave up 1.62 points on the session. This loss left the tech-laden index at 2,122 points at the closing bell but it certainly could have been much worse on the session. Let's see how it handles the flurry of reports coming out the rest of the week.

The selling this morning had the VIX (CBOE VOLATILITY INDEX) cruising higher early in today's session. However, the comeback in the Market helped bring the VIX back down to earth this afternoon. The "fear index" finished the session up only 0.45 of a point at 25.64. Let's continue to watch how it trades around its 50-day moving average (red line) on the chart.    

We've definitely had some movement this week, but after three sessions we really haven't moved too far from where we began the week. Of course, that's fine with us because we wouldn't mind if the next three weeks were exactly the same. If the end result is just a lot of sideways action, we profit the same as if stocks were headed to the moon. Let's just let the time decay kick in and start driving down the premiums in our put spreads.

For now, let's just take a look at how our spreads are holding up as we move into the next two trading days of the week. Keep in mind there's plenty of economic data set to be released over the next two sessions and we're sure things could get very interesting before the week's over.

CURRENT OCTOBER SPREADS

RUT 540-530 BULL PUT SPREAD (15 Contracts entered on 09/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $545.00

The small-cap index ran into a little trouble during today's session, but still remains up over 5 points from where the index began the week. But in today's trading, the RUT fell $6.17 and finished the day at $604.28. However, it remains above its 20-day moving average (light blue line) on the chart and well above our put spread. This gives us plenty of breathing room for now.

OEX 440-430 BULL PUT SPREAD (15 Contracts entered on 09/21/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $442.50

The OEX also ran into some selling in today's session, but remains up on the week. The S&P 100 index fell $1.90 on Wednesday and closed at $488.35. This keeps the index above its 20-day moving average (light blue line) on the chart and nearly 50 points above our "short" strike price. Let's see if it can hold above this moving average and its next support level on the chart through the rest of the week.

AAPL 170-165 BULL PUT SPREAD (15 Contracts entered on 09/24/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $172.50

Just like our other spreads, Apple might have lost ground in today's session but remains ahead on the week. The stock nearly pulled out a gain on the session, but did give back a mere $0.03 on the day. It finished the session at $185.35 and now is sitting 15 points above our put spread. On its chart, we're continuing to watch that huge gap with some concern. However, we like the fact that all of its moving averages are still climbing. These lines should help support the stock if we get any major selling pressure through the end of the cycle.

MNX 157.50-147.50 BULL PUT SPREAD (15 Contracts entered on 09/24/09)

Profit potential of $35.00 per contract

Contingent Stop Order set at $160.00

Unlike our other spreads, the MNX was able to squeak out a gain in today's session. The tech-laden index finished the session up $0.13 at $171.90. This increases our cushion to nearly 15 points in this spread with a little bullish momentum now appearing in the index. Let's see if this continues through the remainder of the cycle.

As always, Trade Happy and Trade Smart

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The Market ends the week with a thud as selling sets in over the final three trading days of the week. We've been talking for weeks about how the Street has been sidestepping the bad news and focusing on only the good economic data. Well, that all changed midway through last week and the results were not good. Stocks took a sharp dive over the final three sessions of the week, finishing with a thud on Friday.

The disappointment on Friday started with a weak durable goods report. After a very big jump of 4.8% in July, the Street was looking for another increase in the Commerce Department's report. But it was quite the opposite from the optimistic data we saw one month prior. Instead of the increase of 0.4% that analysts had predicted ahead of the release, the actual number was a decline of 2.4% in August. The chart below shows just how troubling the data remains on an historical level.  

 Graphic from Briefing.com

If it weren't for defense spending, the durable goods number would have been even worse. Defense spending alone was an increase of 1.1% last month. This data suggests that the recovery is far from a sure thing and it's very hard to see any inklings of optimism based on this report. At the same time, the already bulimic inventory levels shed another 1.3% last month. It's truly hard to believe that these levels could continue to fall.

There was big, optimistic news mid-morning after the University of Michigan announced a rise in its consumer sentiment index. According to the university, sentiment has jumped to its highest level since the beginning of 2008. The September reading showed an increase to 73.5%, which easily topped analysts' expectations of 70.5%. This was up from the final reading in August of 66.6%. The chart below shows the improvement we've seen in the index over the past few months.

Graphic from Briefing.com

However, that optimistic feeling didn't last long because the new home sales figure came out a few minutes later and showed continued weakness on the housing front. According to the Commerce Department, the amount of new homes sales in August came in short of expectations. The Street was looking for an increase to 440,000; instead, the real number came in just 3,000 higher than the previous month to 429,000 home sales in August. Just as troubling, the previous month of July was revised downward by 10,000 homes. That was a fairly significant revision.

Crude was able to stop the bleeding on Friday when it edged up $0.13 on the session. This comes after the "black gold" shed almost 8% in the prior two sessions alone. But Friday's slight gain helped oil get back to $66.02 a barrel at Friday's settlement. It was helped by a forecast out of Goldman Sachs that oil should be at $85 a barrel by the end of the fourth quarter. At the same time, gold suffered a rough week. It shed another $7.30 on Friday's session and finished the week at $990.20 a troy ounce.

Friday's Economic Reports

The Dow Jones Industrial Average fell apart the second half of the week. After two straight losing sessions, the large-cap index tumbled 42 points on Friday, finishing the day at 9665 points. On the week, the index gave up 155 points and is closing in on its 20-day moving average (light blue line) on the chart. Right now, this is hovering just above 9,600 points and near another support level on the chart. These are the two areas we'll be watching closely at the beginning of the week to see if the Dow can make a reversal in this area.  

The S&P 500 also took a beating the second half of the week. While it was down much more during the session, it finished the day 6 points lower at 1,044. Similarly to the Dow, the S&P 500 is now in the area of its 20-day moving average (light blue line) and an old resistance line, which now should become support for the index. Let's hold our breath this week and see if this can help hold the faltering index.   

After weeks of leading the Market higher, the Nasdaq Composite changed course last week and appeared to be dragging the Market lower. It struggled throughout Friday's session, but was able to finish the day off its low. However, that still amounted to a loss of 16.69 points on the day, taking the tech-laden index down to 2,090 points. Similar to the other indices, it's now closing in on several decent support levels on the chart, which should test the strength of the selling we witnessed last week. If the index is able to reverse at these levels, then the bulls are back in control. If not, then watch out below.

The selling last week was good for one index, the VIX (CBOE VOLATILITY INDEX). It jumped 0.66 of a point on Friday and finished the week back above its 50-day moving average (red line) at 25.61. If it can hold above this moving average, then things will get very interesting.   

Last week gave us a mixed bag. The volatility helped us get filled in our new spreads with ease. But the selling towards the end of the week makes us wonder if the retracement we've been bracing ourselves for might actually be here. While it sure feels like there might be some headwinds out there, we need to keep our bearish sentiment in check while we wait to see if there's any strength behind this move.

Let's not forget the beginning of the last cycle when the indexes encountered some strong selling, even breaking strong technical support levels on the chart. However, that didn't last and then everything surged higher. This would have blown up our call spreads if we rushed in and made our spreads into iron condors after the selling took place. To avoid situations like that, we need to use caution.

At the same time, let's keep a close eye on the Market internals to look for a change of the tide. If we get any confirmation this week that this might be taking place, we will probably pull some call spreads out of our bag of tricks. We also might come back with some extra layers on our put spreads. But until then, let's hang tight and keep a watchful eye on everything that's taking place.

CURRENT OCTOBER SPREADS

RUT 540-530 BULL PUT SPREAD (15 Contracts entered on 09/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $545.00

It was a rough finish to the week for the Russell 2000 index. Although Friday's loss wasn't as bad as the previous two sessions, the RUT still tumbled $2.81 on the day and closed at $598.94. The good news is that it finished well off its low on the day; however, it was still another loss for the small-cap index. This week, we'll be watching to see how the RUT handles its rising 20-day moving average (light blue line) on the chart. If it falls through this support level and the one at $590, the next test will come from its rising 50-day moving average (red line). Let's just hope it's not a test that comes anytime soon. Heading into this week, we have a cushion of nearly 70 points in this spread.

OEX 440-430 BULL PUT SPREAD (15 Contracts entered on 09/21/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $442.50

The OEX also ran into trouble over the final three trading days of the week. It dropped 2.88 points on Friday and finished the week at $484.11. Similar to the RUT, the OEX is now hovering right above its 20-day moving average (light blue line) on the daily chart and appears ready to test this line along with the support level at $480. Let's see if we get a decent bounce off either of these levels. For now, we seem to be fine with the index trading over 40 points above our put spread.  

AAPL 170-165 BULL PUT SPREAD (15 Contracts entered on 09/24/09)

Profit potential of $55.00 per contract

Contingent Stop Order set at $172.50

Apple showed us a tremendous amount of strength during Friday's session, but wasn't able to hold onto that at the close. Unfortunately, it finished the day down $1.45 at $182.37. The stock enjoyed some strength after rival RIMM reported disappointing quarterly results. While its relative strength during Friday's session was remarkable, the wicked candle it gave us at the close is definitely a bearish one. Let's sit tight for now but keep a close eye on how it trades this week. Currently, we have over 12 points separating the stock and our "short" strike price.

MNX 157.50-147.50 BULL PUT SPREAD (15 Contracts entered on 09/24/09)

Profit potential of $35.00 per contract

Contingent Stop Order set at $160.00

The MNX has been weaker than our other spreads this week. The tech-heavy index took a beating during this time period and capped its downward run with a $1.56 loss on Friday. That 0.91% loss took the index down to $169.42 at the closing bell and also appears to be closing in on its 20-day moving average (light blue line). After this support line, the next one is sitting around $165.50 on the chart. Let's see if these two lines can help give the index a boost this week.

As always, Trade Happy and Trade Smart

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The Fed tries to talk up the economy but causes the Market to roll over hard. Stocks were flying high shortly after the release of the FOMC policy statement this afternoon, but then fell off a cliff as traders digested the news. The reason for the selling is still being debated, but the result is what we're left to deal with.

To us, the Fed did nothing other than what was anticipated. The members talked up the economy in its statement, saying that they're seeing signs of an economic recovery. We're getting used to these optimistic statements from the Fed and this would certainly fall along the same line. The committee noted the aspects of the economy that are showing signs of life.

The FOMC voted unanimously to keep the federal funds rate unchanged. It also reported that the government will extend its $1.25 trillion mortgage-backed security program into next year. This should help to keep the mortgage rate low for some time. It also wants to help the Market adjust to the Fed's eventual exit from the intervention role that it has played over the past year. Today's announcement said that it plans to ease out its $300 billion Treasury bond purchase program as well. It should have this completed by the end of next month.

We could spend quite a bit of time digesting this latest round of news from the Fed, but what matters to us is the Street's reaction to the release. Today's reaction was full of selling. By the time the closing bell rang, there was red across the board with commodities leading the way lower. Of course, it didn't help matters that the EIA (Energy Information Administration) report showed a jump in supplies earlier in the day.

In today's oil inventory report, the government announced a spike in supplies last week. The Energy Information Administration reported that supplies increased by 2.8 million barrels. This was a complete reversal from what the Street was expecting. Ahead of the release, analysts expected a drawdown of 2.25 million barrels. At the same time, the agency announced a big jump in gasoline supplies over the same time period. By the end of the session, oil was down $2.79 a barrel at $68.97 on the New York Mercantile Exchange.

In corporate news, General Mills was able to cut costs in its fiscal first quarter by enough to boost profits 51%. The stock shot up on the news with the company increasing its full year guidance.

Today's Economic Reports

The Dow Jones Industrial Average was surging higher shortly after the release this afternoon, but then it hit a brick wall. By the time the closing bell rang, the large-cap index was down 81 points at 9,748. This 0.83% tumble took the Dow down to 9,748 on a day when it looked like it was going to test the 1,000 point barrier.   

The S&P 500 also had one heck of a rollercoaster session this afternoon. By the end of the session, it was down 10.79 points at 1,060. We'll have to wait to see if this selling persists into Thursday's session.  

The Nasdaq Composite suffered its third loss in three weeks of trading today when it shed 14.88 points and finished the day at 2,131. This amounted to a .69% decline that wiped away a good chunk of its gains so far this week.

The VIX hit a 52-week low early this afternoon, but then rebounded when all the selling took place. It finished the day up 0.41 of a point at 23.49. Let's keep a close eye on this index the rest of the week for any indication of fear creeping back into the Market.  

We've definitely had a good run of luck this cycle with our fills. The Market's lower open on Monday morning was perfect for entries into our put spreads. We even heard from some members who were able to pick up better fills because of it. Our hats are off to those who saw the free money on the ground and picked it up. But even for the rest of us, it was a good feeling to get our easy fills and then watch the Market reverse and head higher after our entries.

Even after the sudden reversal this afternoon, we're feeling really good about our spreads. Although we have a long ways to go yet this cycle, we think our strikes are at technically sound levels that could withstand a lot of pain if need be.

While we like how this cycle is shaping up, we need to add a few positions to our portfolio. We're going to stay with the index theme and jump back into the MNX this month. We wanted to enter this one in our Sunday newsletter, but the set-up just wasn't right. We now see a decent credit while still being able to get far enough out of the money so that we can sleep easy at night.

At the same time, we're going back to an old favorite AAPL. We've been long time bulls on the fundamentals behind this company, but now we're getting good criteria for a spread this month. The stock has shown us a great deal of relative strength versus the Market, tearing up the charts along the way. We like the fact that this one is a play on its upcoming earnings report, which should help keep the stock holding up even if the Market pulls back. The company also received some very good news from regulators, who have approved accounting rules that will help the company boost its already solid numbers. Everything points to a solid put spread on this stock.

NEW TRADE ALERT (2)

Please Note: These are Day Orders and Limit Orders.

Apple Inc. (AAPL)

OPENING 170-165 OCTOBER BULL PUT SPREAD (15 contracts)

Sell 15 October Puts at 170 strike price

Buy 15 October Puts at 165 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 the index reaches $172.50.

MINI-NASDAQ 100 INDEX (MNX)

OPENING 157.50-147.50 OCTOBER BULL PUT SPREAD (15 contracts)

Sell 15 October Puts at 157.50 strike price

Buy 15 October Puts at 147.50 strike price

Total Credit 0.35 per contract

Potential Profit $525.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if the index reaches $160.00.

AAPL DAILY CHART

MNX DAILY CHART

CURRENT OCTOBER SPREADS

RUT 540-530 BULL PUT SPREAD (15 Contracts entered on 09/21/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $545.00

Our entry appeared to be impeccable in this spread on Monday morning. Especially after yesterday's rocket ride to the upside. However, the index did encounter quite a bit of selling this afternoon after the Fed's policy statement, which wiped out a lot of those gains. The small-cap index finished the session down 7.32 points at $613.37. Regardless of this, we're still in great shape in our put spread with almost 75 points of breathing room.

OEX 440-430 BULL PUT SPREAD (15 Contracts entered on 09/21/09)

Profit potential of $40.00 per contract

Contingent Stop Order set at $442.50

The OEX was also playing right into our hands during the first two trading days of the week. However, this afternoon was a different story. The index tumbled late in the session, leaving the OEX down 3.99 points at the closing bell. This 0.81% drop left the index at $490.36. This gives us a cushion of 50 points in this spread heading into the final two trading days of the week.

As always, Trade Happy and Trade Smart

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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?

The major indices continued to soar last week, allowing us to coast to our 11th straight profitable month! Stocks were led higher by some of the consumer-related names on an otherwise uneventful session. While most stocks slowed down on Thursday and Friday, the weekly indices ran higher with solid gains for the second week in a row.

The last two weeks have ratcheted up the talk from the bulls that the recession is over and that we're moving towards a recovery. With the abundance of optimism everywhere, it might seem that the risk is gone. But keep in mind that sentiment is usually contrarian at extremes. This weekend's Wall Street Journal article pointed out that the negative sentiment was at an extremely negative level when the Market bottomed out in March. It compares this to the huge amount of positive sentiment in today's Market and wonders if this is foreshadowing a reversal in the future.

The article goes on to point out that more than 40% of the S&P 500 capitalization is still in money-market funds. At the same time, large speculators are very bullish on gold and bearish on the S&P 500.

There are two ways to dissect this article. One, if the rally continues to run to the upside, there will be more money that is forced to come out of the money-market funds and find its way back into equities. It would be very hard for professional managers to explain how they missed one of the largest rallies in history. This would continue to push much higher from the current levels as fresh money flows into the Market.  

On the other hand, if some of these money managers are correct, we're likely to see gold move higher and stocks retrace from these levels. Since our crystal ball isn't working, we'll just have to wait and see how this plays out over time. Obviously, we've been questioning the fact that we haven't seen a larger pull-back over the past several months but we'll get to this a little later in the newsletter when we release the new spreads for October.

Speaking of commodities, crude rose for the second straight week, gaining 3.97% over the past five trading sessions. However, on Friday it shed $0.43 a barrel and settled at $72.04 a barrel on the New York Mercantile Exchange. Gold was also down on the session, dropping $3.10 a troy ounce to settle at 1,000.20 on Friday's close.

Friday's Economic Reports

The Dow Jones Industrial Average made it two positive weeks in a row on Friday. The large cap index advanced only 36 points on Friday's session, but gained 214 points for the week. This amounted to a 2.24% gain that took the Dow Jones up to 9,820 points. The index continues to march up the chart and shows no sign of slowing down. Let's see if this bullish momentum can carry into the new week.  

The S&P 500 also had another solid week, but did run out of steam towards the end. It had a slight gain on Friday of 2 points, but did climb 25 points on the week. This 2.45% advance took the index up to 1,068 points. However, the S&P 500 did seem to stall on the last two trading days of the week. Let's see how this plays out at the beginning of this week.

The Nasdaq Composite once again led the way higher last week with its 2.50% gain over the last five trading days. It capped off the week with a 6 point advance on Friday, which took the tech-laden index up to 2,132 points. The only question heading into this week is whether the index can keep up this pace in the near-term.        

The VIX spent last week hovering along in the 23 to 25 point area on the chart. On Friday, it actually ticked up 0.27 of a point to finish the week at 23.92 points. As long as it stays at these lower levels, this would point to the rally continuing in the Market.

Friday marked the end to another profitable month for us, stretching out our winning streak to 11 months and leaving us just one month away for our goal of one year. While the last couple of weeks seemed like a piece of cake, let's not forget how dicey it was at the beginning of this cycle. The major indices sliced through some very strong support levels on the chart and there were plenty of doubts creeping back into the Market at that time.

But after two straight weeks of nothing but green, that feels like a distant memory. While we didn't use up a lot of account maintenance this cycle with only three spreads, we still were able to walk away with quite a decent profit this month. For now, let's go ahead and add up those profits.

EXPIRED SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 08/24/09)

Profit of $50.00 per contract

OEX 450-445 BULL PUT SPREAD (15 Contracts entered on 08/27/09)

Profit of $50.00 per contract

MNX 152.50-142.50 BULL PUT SPREAD (15 Contracts entered on 08/31/09)

Profit of $45.00 per contract

While it was nice to coast to an easy profit last month, let's get working on reaching our goal of 12 straight profitable months. The overall trend in the Market remains extremely bullish at this time. We've talked for quite a while now about our concern that we're likely to hit a pull-back sooner or later. But with such a bullish sentiment everywhere we look, it would be an amateur move to bet against this Market until we see signs that the retracement is here.

Just like we said at the beginning of the last cycle, let's start with put spreads but be ready to make them into iron condors if the Market does turn against us. With that said, let's start with our bread and butter and enter a couple of index spreads on Monday's open. We're going to enter new spreads on the RUT and OEX for Monday morning. These two are giving us the best entries at this point. We like to come in with the safest spreads at the beginning of the cycle and that's exactly what we're doing with these two. Let's keep the strikes very conservative while also taking advantage of the time premium that's out there.

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.

RUSSELL 2000 INDEX (RUT)

OPENING 540-530 OCTOBER BULL PUT SPREAD (15 contracts)

Sell 15 October Puts at 540 strike price

Buy 15 October Puts at 530 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 $545.00.

S&P 100 INDEX (OEX)

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

Sell 15 October Puts at 440 strike price

Buy 15 October Puts at 430 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 $442.50.

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?

The magical Market keeps marching forward. All three indices topped out at their highest levels since last year at this time with broad gains across the board. Even with plenty of traders questioning how much higher this Market can go, money continues to move off the sidelines and into stocks. Forget about the uncertainty that still exists in the economy, the indexes have only been moving in one direction.....straight up.  

Government officials have continued to jawbone this Market with Fed Chairman Bernanke being the latest. Yesterday, Bernanke stated that the recession is likely over. While he also said that the job market will continue to struggle, traders have only been focusing on the positive data lately and Bernanke's words have just added fuel to the current rally.

Today's economic data revolved around the release of the Consumer Price Index. This report is widely seen as the government's inflation gauge and it showed a slight uptick in prices last month. The index climbed 0.4% during August, which was just above the Street's expectations of 0.3% heading into the release. At the same time, core CPI (which strips out food and energy prices) edged up 0.1% last month.

While the slight moves up in CPI and core CPI were widely expected, the chart below shows just how depressed these levels remain on an historical basis. However, once the economy does start to show signs of life, everyone expects inflation to be a long-term problem due to the massive, quantitative easing by the government.

Graphic from Briefing.com

Other economic data released today showed that industrial production rose 0.8% in August thanks to a jump in car production and other goods. This was slightly better than the 0.6% that the Street was expecting ahead of the release.

Today's report on crude inventories sent the price of oil up sharply. The government's data showed a surprising drop of 4.7 million barrels last week, which was almost double what analysts had predicted. This sent crude up $1.58 a barrel in today's session to $72.51 a barrel on the New York Mercantile Exchange. Meanwhile, gold continued its metorioric run past $1,000 an ounce today when it jumped $13.90 an ounce and finished the session at $1,020.20.

In corporate news tonight, Oracle announced a weaker-than-expected earnings report after the closing bell. The company missed forecasts in regards to revenue but still managed to meet the expectations with earnings of $0.30 per share. As of now, the stock has tumbled in after-hours trading. We'll have to see if this is a drag on pre-market trading tomorrow morning.

Today's Economic Reports

Large-caps and financials helped drive today's rally on the Street. This helped to push the Dow Jones Industrial Average up 108 points to 9,791. Resistance levels don't seem to have a chance at holding up with the Dow surging higher nearly every session. The index appears ready to take on the next one in the area of 10,000 and at this pace that could be sometime soon.

The S&P 500 also has been moving straight up the chart. It surged 16 points in today's session, taking the index up to 1,068 points. It seems like nobody is willing to step in front of this Market lately with everyone on the bullish side of the trade.       

The Nasdaq Composite keeps galloping higher as well. It climbed 30 points in today's session and settled at 2,133 points. Unless Oracle's bad news slows it down tomorrow, it probably will just keep marching its way up the chart.       

The interesting thing about the VIX is that we would have expected it to fall much lower this week. But in today's session, it actually rose 0.27 of a point to close at 23.69. Let's keep a close eye on this index for any telling signs.

It doesn't get much better than this for expiration week. With the Market firing on all pistons, we can just sit back and relax. The only negative thing we don't like to see is a big rally before we come back with put spreads next month. But usually, the Market doesn't go straight up like it has been over the past few weeks. Let's keep an eye on the internals for any hints of weakness behind the bull-run that we've been experiencing. After all, it will eventually run out of gas. But for now, let's take a look at how we're sitting in our spreads heading down the home stretch.

CURRENT SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 08/24/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $515.00

The RUT has continued to fly high this week with the small cap index surging 12.54 points in today's session alone. It now sits at 617 points and well above the nearest support level on the daily chart. With over 100 points of breathing room in this spread we shouldn't have anything to worry about.   

OEX 450-445 BULL PUT SPREAD (15 Contracts entered on 08/27/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $452.50

The OEX doesn't look much different than the rest of the major indices with it advancing 6.73 points in today's trading and settling at 491 points at the close. This leaves the index 41 points above our "short" strike price with time running out. We should be able to count our profits in this one.

MNX 152.50-142.50 BULL PUT SPREAD (15 Contracts entered on 08/31/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $155.00

The MNX should make it three for three this month when it goes out worthless later this week. The tech-heavy index rose 2.42 points in today's session and is now sitting at $172.37. With a huge safety net in this one, we should be home free.  

As always, Trade Happy and Trade Smart

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Stocks take a breather after another week of solid gains. While the major indices finished Friday in the red, the moves were simply token losses across the board with small declines. This helped the Market post another week of solid gains, which was perfect for our put spreads.

Perhaps the most important piece of economic data released on Friday was the wholesale inventories. According to the Commerce Department, wholesale levels jumped by the largest amount in over a year during the month of July. While that was seen as encouraging news, it hasn't yet translated into any significant movement for inventory levels, with inventories still falling for the 11th consecutive month.   

Graphic from Briefing.com

The only other significant announcement on Friday was the University of Michigan's preliminary report on consumer sentiment. The initial reading for the month of September came in much better than the Street was expecting at 70.2. Ahead of the release, analysts were predicting a reading of only 67.5, which was the same number reported in August. Although this would seem like extremely good news that the consumer is gaining confidence, the problem is that there is a very low correlation between this report and actual consumer spending. But let's not talk down a very important step on the road to an economic recovery.

Graphic from Briefing.com

Oil bounced back last week, breaking its two-week losing streak. Although it rose 1.87% during the five sessions, it did give up $2.65 a barrel on Friday. It finished the session at $69.29 a barrel on the New York Mercantile Exchange. At the same time, gold also rose 1.01% last week, taking it to $1001.90 and setting an exchange record for highest close.

Friday's Economic Reports

The Dow Jones Industrial Average finally took a breather on Friday, snapping its long winning streak. Although it was a finish in the red, it was only a 22 point falter. The large-cap still managed to post a 164 point gain last week, leaving the Dow at 9,605 points at the close. On the daily chart, the index is bumping up against a decent resistance level. However, these barriers haven't done much to slow down the Dow over the last several months. Let's see what happens this time.      

The S&P 500 also ran out of gas on Friday when it shed 1.41 points, finishing the session at 1,042. Of course, the index did still advance 26 points last week. This amounted to a 5.59% gain last week, which took the S&P 500 right through an old resistance level on the chart.      

The Nasdaq Composite was up during Friday's session, but finished the day down 3 points at 2,080. Despite this falter on Friday, the tech-laden index still climbed over 3% last week, which was the index's biggest weekly gain since July. Let's see if this continues into this week.      

The VIX bounced back a little bit on Friday with its 0.60 of a point gain on the day. After breaking back below its 50-day moving average (red line) on the chart, the "fear index" continued to fall last week. If the rally continues into this week, the VIX should continue dropping.

We came into last week sitting fairly comfortably in all of our spreads. We finished the week in even better shape and are now looking at anther pretty easy expiration week with all of our spreads well out of the money and the premiums pretty well dissolved at this point. The only real issue this cycle was our feeling that the Market was hitting some headwinds. Of course, this didn't quite come to fruition with the indices continuing to march higher. While the upward momentum wasn't quite that forceful throughout this cycle, with a round of selling taking place midway through, it did prevent us from making our spreads into iron condors.

We continue to have those inner feelings that we've come too far too fast. Especially with all of the problems still prevalent in the economy and with any company that relies on consumer spending. But at this point, we have to ride along with the bulls because betting against them is just too dangerous. Let's keep this in mind as we start laying the groundwork for the new spreads next week. But before we start focusing on new spreads for next week, let's take a look at how each position is sitting heading into the final five trading days of this cycle. 

CURRENT SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 08/24/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $515.00

The RUT appeared to be moving higher on Friday, but couldn't hold in positive territory at the close. The small-cap index finished the day 1.31 points lower at $593.59. Despite the set-back on the session, the RUT led the major indices higher on the week with its 4.0% climb over the five trading days. With the index now at its highest mark of the year, we shouldn't have anything to worry about in this position with 83 points of breathing room heading into expiration week.  

OEX 450-445 BULL PUT SPREAD (15 Contracts entered on 08/27/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $452.50

The OEX also appeared to be headed higher on Friday before it pulled back and finished the session down 0.97 of a point at $482.30. Although it wasn't able to continue moving north on the final trading day of the week, the index did break through an old resistance level on Thursday's session and left us in great shape heading into this week. We are sitting extremely comfortably with our 32 point cushion with not a lot of time left in the September option cycle.   

MNX 152.50-142.50 BULL PUT SPREAD (15 Contracts entered on 08/31/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $155.00

The MNX gave us a fairly elongated candle on Friday, but closed not too far from where it opened the session. It gave up only 0.07 of a point on the day, finishing at $168.55. Last week turned out to be another big move higher for some of the big tech names, which was very good for our put spread. With the index well above our "short" strike price heading into this week, we shouldn't have anything to worry about in this one.

As always, Trade Happy and Trade Smart

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Stocks started the new week like they finished the last one.....marching higher. While today's sentiment continued the bullish tone, stocks did take a step backward after the Fed's beige book was released this afternoon. But after the initial set-back, the Market appeared to recover and continued moving higher into the closing bell, keeping the upward momentum firmly intact.  

The Market was full of strength before this afternoon's release of the Fed's Beige Book. But traders hit the sell button once the report was released. The Street didn't like the concerns over weakness in consumer spending. The report showed continued weakness in all regions in regard to retail sales. Keep in mind that over two-thirds of the U.S. economy revolves around consumer spending. This was in spite of the government's huge Cash for Clunker Program that was a supposedly huge hit with consumers.

On the bright side, the Fed's Beige Book did mention that manufacturing has improved in a majority of the regions. But with the focus squarely on the consumer, this report certainly left many doubtful about the validity of the economic rebound. The good news is that although the Market tanked after the release, it was able to rebound late in the session and finish the day with solid gains across the board.

Today's trading seemed to be all about the large-cap stocks with some industrial giants leading the way higher (GE, CAT, and BA). But other notable consumer names such as McDonald's suffered after reporting weak sales numbers. Of course, the Beige Book just reaffirmed the troubles facing the consumer-related stocks.

Usually we get the oil inventory numbers on Wednesday, but with Monday being a holiday, the weekly EIA report was delayed until tomorrow. However, oil was able to rise $0.21 on the session, closing at $71.31 a barrel on the New York Mercantile Exchange. Gold finally took a step back today when it fell $2.60 a troy ounce to close at $995.30.

Today's Economic Reports

The Dow Jones Industrial Average continued the bull-run this week, making it four straight winning sessions in a row. It climbed 49.88 points in today's trading and closed at 9,547. The large-cap index is now closing in on its high for the year and will face a tough round of resistance in the area just above 9,600 on the chart. At the current pace, the Dow should reach this area in tomorrow's session. A break above it could signal another large move to the upside.     

The S&P 500 also made it four advances in a row today. The index has now climbed 38 points in the last four trading days alone. In today's trading, it gained 7.98 points and finished at 1,033. Just like the Dow, the S&P 500 is now closing in on a stiff resistance barrier in the area of 1,040. Let's keep a very close eye on this area the rest of the week because how it handles this level will tell us a lot about the action the rest of this cycle.     

The Nasdaq Composite jumped 22 points in today's session, taking the tech-laden index up to 2,060. It has risen nearly 100 points in the last four trading days alone. Unlike the other two indices, the Nasdaq has now broken through the old resistance on the chart, but wasn't able to hold above it on the close. Let's see if it can continue moving north in tomorrow's session.     

With the Market moving higher, the VIX has moved lower this week. It shed another 1.30 points in today's trading and finished the session at 24.32 points. This keeps the "fear index" firmly below its 50-day moving average (red line) on the chart. If the bulls can remain in control, we should continue to see this index dropping the rest of the week.

With stocks continuing to move higher, our index spreads have enjoyed the ride. All three of our indexes have started this week the way they left off the previous week and that has helped extend our breathing room in these spreads. The other nice thing is that volatility has also been drying up, which is helping the premium wither away in our option prices. This is exactly how we like it. Although we're not convinced that we're out of the woods just yet, we certainly are getting closer to that place. For now, let's just sit back and see how we finish up the week.

CURRENT SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 08/24/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $515.00

The RUT hasn't hit its intraday high for the year just yet, but did hit its closing high for 2009 today. Its gain of $10.02 in today's session helped the small-cap index close at $586.40. However, the 590 point level on the chart could be problematic for the index. Let's keep a close eye on this barrier in tomorrow's session. But like we said about the major indices, if it's able to break through it, we could see another big run to the upside. With over a 75 point cushion in our put spread, we couldn't ask to be sitting much better with just over a week left until expiration.

OEX 450-445 BULL PUT SPREAD (15 Contracts entered on 08/27/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $452.50

The OEX lagged slightly in today's trading, but still finished with a $2.78 gain. This 0.58% move took the index up to $478.95 and very close to its high for 2009. Just like the rest of the indexes, we'll be watching its next resistance line very closely over the next two trading days. But even if it doesn't break through this barrier, we're sitting pretty well with almost 30 points of breathing room in this one.  

MNX 152.50-142.50 BULL PUT SPREAD (15 Contracts entered on 08/31/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $155.00

The MNX broke right through its 2009 high today, easily disregarding its resistance level on the chart. The tech-laden index surged 1.44 points in today's trading and closed at $166.92. This puts the MNX almost 15 points above our "short" strike price and leaves us in great shape. Let's just sit back and enjoy the ride.

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?

Jobs are still disappearing, but that didn't stop the Market from pushing higher on Friday. The economic data continued to be slightly troubling at the end of the week, but the bulls came roaring in and pushed the indices higher. While the number of jobs lost wasn't quite as bad as the Street was expecting, the unemployment rate took another big jump upward on Friday. But traders took the indices higher for the second straight session, which helped wipe away a huge chunk of the losses encountered earlier in the week.

The highly anticipated nonfarm payroll report came in slightly better than expected Friday morning. Ahead of the release, analysts were looking for a loss of 230,000 jobs in the month of August. But the release from the Labor Department showed that only 216,000 jobs were cut during the month. While that news was certainly a little better than the Street was expecting, there was a significant revision upward for the previous month of July to a loss of 276,000 jobs. That was not good news. The graphic below shows that we have now moved up to levels that we encountered during the last recession in 2001.

Graphic from Briefing.com

The other big economic report released on Friday morning was the unemployment rate. Unlike the nonfarm payroll, this one came in worse than analysts were expecting when it catapulted to its highest level in 26 years. The August unemployment rate jumped up to 9.7%, which was higher than the expectations of 9.5%. It was also a significant move up from July's unemployment rate of 9.4%. As a matter of fact, July's reading was actually down from the prior month, which was the first time in almost a year and a half. The chart below shows that the rate continues to climb at quite a steep pace. Most analysts are still expecting this rate to top off in the 10% range.

Graphic from Briefing.com

It was a rough five sessions for oil last week with the black gold shedding 6.5% with many oil traders questioning the possibility of a near-term economic recovery. Despite the beating it took for the week, it was able to move up a mere $0.06 on Friday, finishing the week at $68.02 a barrel on the New York Mercantile Exchange.

Friday's Economic Reports

The strong rebound on Thursday and Friday helped the Dow Jones Industrial Average pare its loss on the week, but still it wasn't able to extend its two week winning streak. The large-cap index rose 96 points on Friday and finished the week at 9,441. However, that still amounted to a 102 point loss for the week. On the daily chart, the Dow made it back to an old resistance level just above Friday's closing price. If it's able to push through this barrier to the upside, it's likely headed back to the resistance above 9,600 on the chart. If not, then it could easily head back lower and test the lows from last week.    

The S&P 500 also surged at the end of the week, but still lost 12 points over the five trading days. On Friday, it climbed 13 points and finished the week at 1,016. Similar to the Dow, the S&P is now closing in on an old resistance level at 1,020 points on the daily chart. If it can keep moving north, it's also likely to re-test an old resistance level at its high near 1,040 points. However, if there's selling this week, it also could easily drop back down to test last week's low. Either way, there should be plenty of action to watch over the next four sessions.    

The Nasdaq Composite made one heck of a recovery at the end of last week, but still wasn't able to make it back into positive territory for the week. On Friday, it raced 35 points higher, finishing the session at 2,018 points. While that was quite a session for the tech-laden index, it still dropped nearly 10 points on the week. It finished the week just above an old resistance level on the chart and appears to be pushing back towards its high on the year. If it keeps moving up this week, we'll be watching the old resistance at its high in the area of 2,060. But if it falters, let's keep a close eye on its low from last week in the area of 1,960.    

After taking off like a rocket at the beginning of last week, the VIX has fallen sharply over the last two trading days. On Friday, it shed 1.84 points and finished the week at 25.26 points. This took the "fear index" back below its 50-day moving average (red line) and its 20-day moving average (light blue line). The bulls see this as a good sign for the Market but the one thing that has us a little concerned is the size of the daily candles because it shows a big increase in volatility over the past week. Let's see if that continues into this week.

Last Wednesday we were strongly debating the merits of adding call spreads to all of our positions, but wanted to wait until after the jobs report on Friday. Sitting here today, it looks pretty obvious why we held off making these spreads into iron condors. While we're still not overly convinced that the Market is headed dramatically higher, we've seen over the past several months that we don't want to bet against the bullish momentum because it can head higher in a hurry.

The rally on Thursday and Friday was perfect for our put spreads. It gave us back some of our large cushions in these spreads with under two weeks remaining in the September options cycle. We might only have three put spreads working, but the profit potential isn't too bad at all. For now, let's take a look at each of these spreads in some detail to see how we're positioned heading into this week.

CURRENT SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 08/24/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $515.00

It was definitely an ugly start for the small-cap index last week. But a strong surge on the final two trading days left us in much better position than where we were in our last newsletter. The RUT surged 8.01 points on Friday and finished the week at $570.50. This pushed our cushion up to 60 points in this spread. The RUT closed at its 20-day moving average (light blue line) on the chart and just below an old resistance level at $575. Let's keep a close eye on this barrier if the index is able to move higher at the beginning of the week. On the flip side, if there's weakness, we'll be watching the old support at $560 and then it's low from last week on the chart. How the RUT handles both of these levels should tell us quite a bit.

OEX 450-445 BULL PUT SPREAD (15 Contracts entered on 08/27/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $452.50

The OEX turned in a strong performance on Friday when it rose 6.05 points, closing at $472.17. Perhaps the most encouraging part of it was that it moved back above its 20-day moving average (light blue line) and right past an old resistance level at $470 on the chart. Let's see if it can keep moving north and reach the next resistance just above $480. If it does, this put spread would be in great shape. But if there's any selling this week, we'll be watching its low from last week very closely. We definitely would want to see this support continue to hold. Currently, we're very comfortable with our put spread and its cushion of 22 points.

MNX 152.50-142.50 BULL PUT SPREAD (15 Contracts entered on 08/31/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $155.00

Similar to our other indexes, the MNX took a beating at the beginning of last week. However, it rebounded nicely and was flying high on Friday when it rose 3.21 points and finished the week at $163.81. Friday's session took the tech-heavy index right past its 20-day moving average (light blue line) and an old resistance line near $163 on the chart. It now has its year-to-date high within reach on the chart. Let's see if it can reach this level during the next four trading days. We're currently sitting in great shape in our put spread with over 10 points of breathing room.

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 stabilize after yesterday's bloodletting. While it wasn't a green finish, the Market was able to take a breather from all the selling and spent most of the day drifting sideways. Today's economic data was less than satisfying and left many on the Street anticipating reports that will come out later in the week. The end result was a fairly uneventful session, but we'll take it after yesterday's wicked tumble.   

This morning's first economic report was anything but optimistic. Automatic Data Processing (ADP) announced that private-sector jobs declined by 298,000 in the month of August. While the decline wasn't surprising, the size of it was. Analysts were expecting a contraction of 213,000 to 250,000 jobs last month before the data was released. This report is often referred to as the precursor to the all-important non-farm payroll that comes out on Friday. If the report is an accurate indicator this month, then it could be really ugly on Friday.

Keeping with the disappointing trend today, the Commerce Department reported that factory orders climbed by only 1.3% in July. The Street was looking for a better number of 2.2% for the same month. The graphic below shows just how far we've fallen, even drastically lower than the 2001 recession.

Graphic from Briefing.com

In other economic news, the Labor Department announced that productivity increased to a 6.6% annual rate in the second quarter. This was ahead of analysts' expectations and up from the previously reported rate of 6.4%. Of course, this simply means that employers are just using working their current employees harder instead of hiring new staff.

Gold continued its run to the upside today. With the dollar falling, gold climbed $21.90 an ounce today and settled at $976.90. At the same time, oil couldn't hold onto its morning gains from the Department of Energy's inventory report. The government announced a decline of 400,000 barrels last week along with a three million barrel drop in gasoline supplies. The news initially lifted the price of oil, only to have it drop in the afternoon and finish the session at $68.05 a barrel on the New York Mercantile Exchange.

Today's Economic Reports

It's been a rough four trading days for the Dow Jones Industrial Average. The large-cap index is down nearly 300 points during that stretch including its 29 point tumble today. At today's close, the Dow is currently sitting at 9,280 points. In yesterday's session, it fell below its 20-day moving average (light blue line) and now appears to be headed towards the next support level in the area of 9,200. Let's watch this level very closely in the next couple of sessions. We would like to see it hold at this level.   

The S&P 500 also has been falling hard over the last four trading sessions. It managed to hold at 3 points lower in today's session, closing at 994 points. We were hoping to see the index hold at 1,000 points yesterday, but that didn't happen. The S&P 500 closed at a decent support level today, but we are concerned for the next two trading days. If it continues to encounter selling, the next stop could be at the 980 point level.   

The Nasdaq Composite was in positive territory during today's session, but finished the day 1 point lower at 1,967. Similar to the other two indexes, the Nasdaq broke through its 20-day moving average (light blue line) in yesterday's session. Although it closed at another support level today, we are concerned that the index could be headed towards its 50-day moving average (red line). Let's continue to watch it closely over the next two trading days.   

Volatility has certainly been rising. The VIX broke above its 50-day moving average (red line) in yesterday's session and was headed higher for a portion of today's trading. However, when the closing bell rang it was down 0.25 of a point at 28.90. Let's continue to watch this index for any hints of continued selling to come.

Well, there's no doubt that we've been concerned about a possible retracement for some time now. After the amazing run we've been on over the past several months, we knew that eventually the Market needed to pull back. The only question was when and by how much. Although we can't answer either of those questions just yet, it does look more like the correction is here.

The last four trading days have been filled with unease, which has us on high alert. We're still sitting decently in all of our spreads, but we also know how fast things can deteriorate. We've been debating whether or not to add call spreads to our current positions, making them into iron condors. The only thing holding us back is what happened in the middle of last month when we got a sharp pull-back. The Market then reversed and made a huge move to the upside.

With this in mind, we want more confirmation of selling to come. Equally important, we need to be able to bring in a decent credit with strike prices above key resistance levels on the chart. Because of these two issues, we want to sit tight for the time being to see what plays out over the next trading day or two. If we see an opportunity to add a call spread or possibly layer our current spreads with an additional put spread at a lower level, we'll send out a trade alert tomorrow evening.

But if this doesn't happen, let's just try to make it to the weekend and then reevaluate how we're positioned for the final two weeks. For now, let's take a look at each of our spreads in some detail.

CURRENT SEPTEMBER SPREADS

RUT 510-500 BULL PUT SPREAD (15 Contracts entered on 08/24/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $515.00

The RUT has been slicing through support levels like a hot knife cuts through warm butter. Although the selling let up today, the small-cap index still fell 2.23 points and finished at $555.83. This leaves us with a 45 point cushion with two and a half weeks remaining in the September option cycle. For the rest of the week, let's keep a close eye on the next support level at 550 points and then its rising 50-day moving average (red line). We need these levels to provide some very good support.

OEX 450-445 BULL PUT SPREAD (15 Contracts entered on 08/27/09)

Profit potential of $50.00 per contract

Contingent Stop Order set at $452.50

Yesterday' selling was especially painful for our OEX spread. The index fell below a very good support level at $470 as well as its 20-day moving average (light blue line). The next true test will come in the area of $455, which was where the index made a sharp reversal last month. Let's hope the same thing happens this time if it's needed. For now, let's just sit tight and see what unfolds the rest of the week.

MNX 152.50-142.50 BULL PUT SPREAD (15 Contracts entered on 08/31/09)

Profit potential of $45.00 per contract

Contingent Stop Order set at $155.00

It took us a long time to get filled in this spread, but ever since we got that fill the index has been in a free-fall. The heavy selling at the open today had us a little concerned the same thing was in store today. However, the index was able to close down only 0.15 of a point at $159.43. This leaves the index almost 7 points above our "short" strike price. On the chart, we are closely watching its rising 50-day moving average (red line) as well as its next support level from the middle of August. If there's more selling to come, these are going to be our best chances of support for the MNX. For now, let's not get too concerned unless the index hits these levels.

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?