Stocks end the month higher, but struggle on the week. Good economic data helped push stocks higher on Friday, but continued concerns out of Europe kept the bulls in check. The session ended slightly higher on the session, but declined on the week.

With all of the attention on the Gross Domestic Product Friday morning, we would have thought it would make a much bigger impact on the Market. The Commerce Department delighted economists on Friday morning when it announced a 5.9% jump in the fourth quarter. This was up from the previous estimate of 5.7% growth for the same period. The chart below shows the huge jump in GDP that we've experienced since bottoming out on the chart. The only question now is whether we can keep it going because so far the data is pointing to a drop-off for the first quarter of 2010.

Graphic from Briefing.com

In other economic data on Friday morning, the Chicago PMI (Purchasing Managers Index) showed the fifth straight increase with January's reading of 62.6. While also being well above expectations, the new data brought the index up to its highest level since the spring of 2005. The expansion in the index is a very good sign for the economy with business spending picking up quite a bit. Of course the pessimists out there were saying that this could increase the pace of inflation if this keeps up. After the economy that we've been dealing with over the past two years, we're not sure inflation would be that bad of a thing.

Also on the day, the University of Michigan's Index of Consumer Sentiment released its final reading for February. It showed a slight drop from its preliminary reading of 73.7 two weeks ago to a final number of 73.6. Although this was slightly disappointing, remember this report is not all that influential on the Street. While we always like to see the consumer gaining confidence, it rarely translates into an increase in consumer spending.

Graphic from Briefing.com

With all of the good economic data coming out on Friday, you're probably wondering why the indices weren't able to push significantly higher on the session. Well, it kind of feels like a broken record these days with all of the concerns still lingering over Greece. Now it appears that the European Union is not satisfied with the country's plan to reduce its deficit. It's starting to feel like a soap opera that is stuck in reruns.

Oil maintained its strength on Friday, breaking through the $80 a barrel intraday. However, it wasn't able to hold above that mark at the close. It seemed to be propelled by the strong GDP number, which gave hope of an improving economy. Traders took this as a bullish sign for oil, helping it to climb $1.49 a barrel and finish the session at $79.66 a barrel on the New York Mercantile Exchange. All of the positive economic data this month helped crude to advance 9.3% during February, posting its strongest one-month performance since last May.  

Friday's Economic Reports

After a wild ride for most of the week, the Dow Jones Industrial Average had a fairly small trading range on Friday. The large-cap index squeaked out a modest gain of 4 points on the final trading day of the week when it closed at 10,325 points. While it wasn't able to make it back to its 50-day moving average (red line) on the chart, it also didn't give up any more ground on Friday either. This week, we'll be watching to see if we're able to make it back above this barrier. But if there's more selling, let's keep a close eye on its 20-day moving average (light blue line, which is where the index reversed from last Thursday.  

The S&P 500 also appeared to take a sedative on Friday. It inched up 1 point on the session to finish the week at 1,104 points. On the daily chart, the S&P 500 remains just under its 50-day moving average (red line), but certainly within striking distance. As in the Dow, we want to see if the S&P 500 can make it back above this resistance line on the chart. But also like in the Dow, let's keep a close eye on the S&P 500's 20-day moving average (light blue line) if we get another round of selling this week. We'd like to see this area continue to provide support for the index.    

The Nasdaq Composite remains a little bit stronger than the other two indices. Hopefully it's just foreshadowing things to come. The tech-laden index climbed 4 points on Friday to finish the session at 2,238 points. However, it was able to make it back above its 50-day moving average (red line) and hold there at the close on Friday. Let's see if it can continue moving higher now that it has made it above this mark. If not, we'll be watching the next support level at 2,200 points.

The VIX (CBOE VOLATILITY INDEX) appeared to be rising once again on Thursday before an afternoon rally in the Market took a bite of the index. It finished the day with a big red candle and then continued falling on Friday when it shed 0.60 of a point to close at 19.50 points. Let's see if it stays in the red this week.

After all of the crazy trading we encountered last week, it was nice to see a calm session on Friday. The Market was able to edge slightly higher on the session and we were able to step back and catch our breath. For the most part, it turned out to be a pretty good week for us. We got everyone filled pretty quickly at the beginning of the week. For anyone that had troubles, Thursday morning's selling helped them out.

Now that everyone's in, we've gotten a nice bounce-back in PCLN that was good to see. The RUT also seems to holding its own, which is never a real concern for us in this index. Our only struggling spread is GOOG, but we still have plenty of confidence in this position and believe the stock will recover quite nicely before the cycle is done.

We have a couple new spreads that we're very close to sending out a trade alert on, but we need to get some confirmation at the beginning of this week before we make the trade. If this happens, we're likely to have another trade alert on Wednesday night. For now, let's take a look at how we're sitting heading into the new week.

RUT 560-550 BULL PUT SPREAD (15 contracts entered on 02/23)

RUT CLOSED AT $628.56 Today (68.56 points away from our put spread)

Profit potential of $50.00 per contract

Contingent Stop Order set at $565.00

The small-cap index was able to fight its way back Friday afternoon, but still finished the session down 1.90 points at $628.56. The good news for us came on Thursday when the RUT was able to bounce nicely off its 50-day moving average (red line) on the chart. As long is it continues to trade above this line, we like this spread an awful lot. But even if it drifts lower, we still have tons of support between our "short" strike price and the index. With this in mind, let's sit back and see how things go this week.

PCLN 200-190 BULL PUT SPREAD (15 contracts entered on 02/22)

PCLN CLOSED AT $226.71 Today (26.71 points away from our put spread)

Profit potential of $50.00 per contract

Contingent Stop Order set at $202.50

Priceline continued its reversal on Thursday with a solid $2.84 gain on the final trading day of the week. This took the stock up to $226.71 and looks to have regained its bullish momentum. Let's see if PCLN can keep that going this week. For now, we really like how we're sitting in this put spread with over 26 points of breathing room.

GOOG 490-480 BULL PUT SPREAD (15 contracts entered on 02/23)

GOOG CLOSED AT $526.80 Today (36.80 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $492.50

Google was able to come up with a slight gain on Friday, but continues to be plagued by worries internationally and antitrust concerns. The stock was able to inch up $0.37 on Friday to finish the week at $526.80. But the damage on the chart was done on Thursday when it gapped lower and then wasn't able to recover as much as the rest of the Nasdaq. On the chart, let's see if it's able to hold above Thursday's low at $520 this week. If the Market can move higher, it should take this one along for the ride. If not, we might need to come back with a call spread on this one, making it into an iron condor. 

As always, Trade Happy and Trade Smart 

Bernanke helps ignite a buying frenzy this morning. The Fed Chief gave traders a reason to buy this morning, which helped stocks race higher and wipe away two days of selling. The positive tone from Bernanke helped spread the optimism from the House Financial Committee to Wall Street. After two days of nothing but red, it was a much needed break and perfect for our put spreads.

Stocks got a big boost from the Federal Reserve Chairman this morning when he mentioned that the Central Bank's action to increase its Discount Rate wouldn't necessarily mean an increase in the Federal Funds rate anytime soon. In the Chairman's testimony on Capitol Hill, he really took the anxiety out of the Market and helped jump-start today's rally. By keeping interest rates low for businesses and consumers, the Chairman is hoping to help revive the economy at a faster pace.

In economic news today, the new home sales report was kind of ugly. It showed an 11.2% drop in January, which wiped out the previous year's gain. This was just a one-period drop, but might be forecasting another round of contraction. The chart below shows the quick reversal made in today's report. This comes after the data was showing slight improvement in previous reports and brings the seasonally-adjusted annual sales down to a rate of 309,000 units.  

Graphic from Briefing.com

In the only other bit of economic data today, the weekly Energy Information Administration reported a jump in gasoline demand, but a bump in crude supplies. The agency announced an increase of 3 million barrels last week, which was above expectations. But there was a nice pickup in gasoline demand week-over-week. However, it was the Fed Chief who ignited a rally today, which took the price of crude higher as well. It jumped $1.14 to $80 a barrel in today's session.

Today's Economic Reports

After a rough start to the week, the Dow Jones Industrial Average bounced back nicely in today's session. It climbed 91.75 points and finished the session just below its 50-day moving average (red line) on the chart. After falling below this moving average yesterday, we were concerned that we might be headed back down the chart. This makes today's action even more impressive. Let's see if it's able to make it back above this barrier and finish the week on an up-note.

The S&P 500 also got back a big chunk of this week's losses in today's session. It rose 10.64 points in today's trading to finish at 1,105 points. This brings the index to within striking distance of its 50-day moving average (red line) on the chart. Let's see if it can make it through this resistance line in tomorrow's trading.   

The Nasdaq Composite was a little bit stronger than the other two indices today when it advanced 1.01%. This translated into a 22.46 point gain, which took the tech-laden index back above its 50-day moving average (red line) on the chart when it settled at 2,235.90 points. Let's see if it can continue climbing over the next two sessions and finish the week above this moving average. This would be pretty impressive considering how the first two trading sessions went this week.  

After taking a big step up the chart on Tuesday, the VIX (CBOE VOLATILITY INDEX) fell apart in today's action. It shed 1.10 points and finished the day back below its 50-day moving average (red line) on the chart. Let's keep a close eye on this index the rest of the week to see if anxiety continues to wane like it did today after Bernanke's testimony.   

It's been quite a week and it's not even close to being over yet. The drop in the Market during the first two trading days was really perfect for our put spreads. It allowed us to get filled in all of our spreads with quite a bit of ease. Then we got the strong rebound today, which helped pump up the cushion in our RUT spread. We would have liked to see our other two positions hold up a little better today, but if the Market keeps moving higher we're sure they'll go along for the ride.

Although we have nearly all the auto traders filled in the spreads, we do have some members still attempting to get entered. For these auto traders, we'll continue to send the same trade alerts to the brokers with the same credits this week.

We'd like to come back with some additional spreads tonight, but feel that perhaps we should hold off to make sure that this rebound has some legs. After all, we still have plenty of time in this cycle left so let's take our time with the entries.

RUT 560-550 BULL PUT SPREAD (15 contracts entered on 02/23)

RUT CLOSED AT $630.43 Today (70.43 points away from our put spread)

Profit potential of $50.00 per contract

Contingent Stop Order set at $565.00

The small-cap index was our one spread that took advantage of today's strong Market. It was able to climb 5.36 points in today's action and close at $630.43. This was extremely nice to see after yesterday's ugly session. We're keeping a close eye on the RUT's 50-day moving average (red line) on the chart. If there's anymore weakness in the index, let's see if it's able to hold above this moving average because it should be a strong support level for the RUT. We'd say it's "so far, so good" in this spread.

PCLN 200-190 BULL PUT SPREAD (15 contracts entered on 02/22)

PCLN CLOSED AT $225.02 Today (25.02 points away from our put spread)

Profit potential of $50.00 per contract

Contingent Stop Order set at $202.50

It's been a rough week for PCLN so far. Even with today's rally in the Market, Priceline wasn't able to make any headway. However, it did finish the session near its high of the day and well off its low. That's about as positive as we can say for this one. The stock was hurt by some disappointing earnings from its competitors earlier in the week and has found some selling hitting the stock because of it. In today's trading, PCLN finished the session $0.07 in the red at $225.02. Let's see if it can turn things around during the final two sessions of the week.

GOOG 490-480 BULL PUT SPREAD (15 contracts entered on 02/23)

GOOG CLOSED AT $531.47 Today (41.47 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $492.50

Although the Nasdaq was the strongest index today, our tech stocks sure did struggle; none more than Google, who has been taking a beating so far this week. The stock has been battered in the media over privacy issues and anti-trust suits coming from abroad, among other things. In today's session, it fell $3.60 to finish the day at $531.47. Although we still have a very big cushion in this spread, we want to keep a close eye on the internals in this stock because we don't like the action so far this week. But even with this said, we still have plenty of breathing room and time for GOOG to get things turned around.

As always, Trade Happy and Trade Smart 

We got some more red today, which helped us with our fills. A majority of the auto traders got filled today, but not all of them or all of the brokers were filled completely. Due to this, we're going to send the alerts back tomorrow only for those members not already filled.  

NEW TRADE ALERT (2)

Please Note: This is a Day Order and Limit Order. These trades only apply to those members not filled already on Tuesday.

RUSSELL 2000 INDEX (RUT)

OPENING 560-550 MARCH BULL PUT SPREAD (15 contracts)

Sell 15 March Puts at 560 strike price

Buy 15 March Puts at 550 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 $565.00.

Google Inc. (GOOG)

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

Sell 15 March Puts at 490 strike price

Buy 15 March Puts at 480 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $492.50.

As always, Trade Happy and Trade Smart

We got a little move for our new spreads this morning, but not enough to get all of our new spreads filled. We got filled in PCLN, but that was the only one. For tomorrow, let's keep our RUT and GOOG trade alerts the same and see if we get a pull-back that helps us get our credits. If not, we'll make an adjustment tomorrow night.

In a separate note, we've had a technical issue with our email account during the past week. This issue now appears to be resolved. If you've sent an email to us during this time, please be patient and we hope to respond to all of them within in the next day.

NEW TRADE ALERT (2)

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

RUSSELL 2000 INDEX (RUT)

OPENING 560-550 MARCH BULL PUT SPREAD (15 contracts)

Sell 15 March Puts at 560 strike price

Buy 15 March Puts at 550 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 $565.00.

Google Inc. (GOOG)

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

Sell 15 March Puts at 490 strike price

Buy 15 March Puts at 480 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $492.50.

As always, Trade Happy and Trade Smart

Short week....big gains. There might have been only four trading days last week, but each of them pushed the Market higher. Four trading days and four green finishes. With nothing but put spreads in our portfolio, it's hard to ask for anything better than what we got last week.

Friday's session wasn't a big gain, but there was a nice recovery late in the session that helped extend the winning streak for the indices. Early in afternoon, there was some turmoil when the President started talking about increased bank regulations and healthcare reform. These two issues caused a brief round of selling on Friday, but there was a recovery late in the day that helped get the indices back into positive territory by the time the bell rang.

Of course, there was already some concern lingering from the Federal Reserves talk of increasing the discount rate. This is the rate that the Fed charges banks for overnight lending in a short-term funding basis.

The only other real news on Friday was the release of the Consumer Price Index, which came in less than expected. According to the Labor Department, the index climbed by 0.2% in January. This was up slightly from December's reading of 0.1% while also being under the 0.3% that the Street was expecting. At the same time, core CPI (which excludes food and energy prices) actually slipped to a -0.1% last month. This was also much less than the positive 0.1% that analysts had forecasted.

These readings should help take the pressure off the Fed to raise the federal funds rate in the near-term. The chart below shows that core CPI remains drifting sideways while the CPI continues moving higher, but at a manageable pace. It's hard to see any trouble in these numbers.

Graphic from Briefing.com

The surprising move by the Central Bank last week helped crude move higher on Friday. It suffered briefly after the CPI report was released, but finished the session up 0.9% at $79.81 a barrel on the New York Mercantile Exchange. While the strengthening of the dollar usually means trouble for commodities like oil, this wasn't the case on Friday. Let's watch to see if this continues or if we see movements in opposite directions this week.

Friday's Economic Reports

The Dow Jones Industrial Average made it four straight green sessions on Friday when it held on to a 9 point gain at the close. The large-cap index had a bigger gain working on the session, but the afternoon sell-off wiped this away. But even with the struggles on the session, the Dow still made it into positive territory at the close every day last week. This amounted to a 303 point climb for the large-cap index, but more importantly, this helped the Dow make it back above its 50-day moving average (red line) on the chart when it closed at 10,402 on Friday. This is a very good sign for the bulls. However, we'll be watching to see if it's able to hold above this mark in the near term. 

The S&P 500 also posted a solid gain last week. But similar to the Dow, it was able to climb only 2 points on Friday's session, taking the S&P 500 up to 1,109 points. But unlike the large-cap index, the S&P 500 wasn't able to make it back above its 50-day moving average (red line) on the chart. Instead, it closed just above this line at Friday's close. Despite not making it above this line, it still managed to gain 33 points over the past four trading days, which was a solid move to the upside for the index.  

The Nasdaq Composite wasn't able to lead the way last week, but still turned in a very good performance over the past four trading days. On Friday, it traded similar to the S&P 500 with its 2 point gain. However, on the week, the tech-laden index surged 60 points, taking it up to 2,243 points. This 2.76% gain helped the index move back above its 50-day moving average (red line) and hold well above it on the close Friday afternoon. Let's see if it's able to stay there this week.

Perhaps the best news last week was the deterioration of the VIX (CBOE VOLATILITY INDEX). The strong move in the indices helped erase the anxiety and fear that we were experiencing earlier in the cycle. Although the VIX only shed 0.61 of a point on Friday, this took it down to 20.02 points and left it well below its 50-day moving average (red line). We want to see if it's able to hold below this line in the near-term.  

With the strong gains in the Market over the past few weeks, it's easy to forget the type of trading environment that we were experiencing earlier in the cycle. For several sessions, it appeared that the sky was falling with everything rolling over hard.

Unfortunately, our original OEX put spread took the brunt of this pain when the index fell to just below our close-out trigger price, causing us to close out this spread near the low of the downward tumble.

With the OEX settling on Friday way above both of our put spreads, it's easy to start second guessing the actions we took during those dark days a few weeks ago. But to become good traders, we need to be able to compartmentalize these feeling because we took the best course of action that we could at the time. We minimized the potential loss while adding an additional put spread at lower strike prices. This helped to bring in some extra premium this month and reduce our loss on the OEX close-out.

As we said a few weeks ago when we closed out the spread, the loss normally wouldn't have been so large. However, we had the huge spike in the VIX and the large amount of time value, both working against us. Usually, the loss would have been about one-third of this price and we still could have walked away with a profit for the month. Obviously, that didn't happen. But enough about the problems, let's just add up the totals and then see how we're going to get this amount back next month.

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10)

Profit of $40.00 per contract

RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

Profit of $40.00 per contract

RUT 530-520 BULL PUT SPREAD (10 Contracts entered on 01/25/10)

Profit of $40.00 per contract

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

Original Credit of $45.00 per contract

Close-out Debit of $365.00 per contract

Final Loss on Spread of $320 per contract

OEX 460-450 BULL PUT SPREAD (10 Contracts entered on 01/28/10)

Profit of $45.27 per contract

With the February cycle now behind us, let's get focused on how we're going to make this amount back in March. As usual, we're going to get things started with a spread on the small-cap index for the new cycle. The RUT has been rock solid for us over the past year and a half and we like the strong bounce-back that that the small-cap index has made over the past two weeks. Let's take advantage of this move by placing a put spread at some safe levels below the RUT. Our thought process heading into this cycle is similar to the last one. If we get some selling, let's add a layer to the index and profit twice. At the same time, we're always open to making any spread into an iron condor, but don't want to go into the cycle feeling that we need to force one. Instead, let's just take what the Market gives us.

At the same time, we're going to come back with another put spread on the PCLN. After posting another solid earnings report, the stock has soared. We want go along with the strong trend in this stock and profit with another put spread. With both the fundamentals and technicals on our side, we should be in great shape. However, let's try to be really safe and keep our strike prices below some very strong support levels on the chart.

We're going to also go back to one of our favorite stocks, GOOG. Since bottoming out near $520 in early February, the stock has started to rebound. We wouldn't be surprised to see it continuing to work its way up the chart with several analysts raising their targets for the stock price. Let's continue to be safe in our put spreads by staying well below the stock price and the recent swing lows on the chart. Let's get these three spreads going for us before we add additional positions.

NEW TRADE ALERT (3)

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

RUSSELL 2000 INDEX (RUT)

OPENING 560-550 MARCH BULL PUT SPREAD (15 contracts)

Sell 15 March Puts at 560 strike price

Buy 15 March Puts at 550 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 $565.00.

Priceline.com Incorporated (PCLN)

OPENING 200-190 MARCH BULL PUT SPREAD (15 contracts)

Sell 15 March Puts at 200 strike price

Buy 15 March Puts at 190 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 $202.50.

Google Inc. (GOOG)

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

Sell 15 March Puts at 490 strike price

Buy 15 March Puts at 480 strike price

Total Credit 0.45 per contract

Potential Profit $675.00

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $492.50.

RUT DAILY CHART

PCLN DAILY CHART

GOOG DAILY CHART

As always, Trade Happy and Trade Smart

Stocks continue to climb today, but at a slower pace. Coming off Tuesday's massive rally, trading was not as bullish, but stocks still posted modest gains thanks to positive economic data and strong earnings. Of course, it also helped that money continues to flow from Europe into the U.S. Market, thanks to all of the concerns and anxiety over there. This also helped the dollar strengthen over foreign currencies.  

The Street reacted positively this morning to a surprising upturn in the housing market. The Commerce Department announced a jump in the construction of new homes and apartments last month. The new annual pace reported in January stands at 591,000, which was better than the 580,000 that analysts were expecting. This also increases the construction activity to the highest level in six months thanks to January's increase of 2.8%.

Traders also liked the earnings report from Deere & Company, who posted strong earnings and a better first quarter profit than expected. The company also raised its full-year guidance, which is what the Street is always most interested in. Remember, it's the forecast and future expectations that drive stock prices.

The only news this afternoon was the release of the meeting minutes from the last FOMC meeting. Basically, it's telling us what took place during January's meeting, or more realistically it's telling us what the policymakers want us to know. The big news out of today's release was that the Central Bank is expecting unemployment to remain elevated and the economy to remain subdued for the next two years.

This is somewhat different from what the committee was saying previously, that it would take five to six years for the economy to return to normal. Due to this, the minutes can be seen as a very positive step for the economy. In the updated minutes, members were forecasting that unemployment would remain between 9.5 and 9.7 percent this year. Next year, policymakers expect the unemployment rate to drop a full percent to between 8.2% and 8.5%.

Graphic from Briefing.com

The positive economic forecasts helped to lift oil in today's session. Crude edged $032 higher in today's session, settling at $77.33 a barrel on the New York Mercantile Exchange. Meanwhile, gold ticked up a mere $0.20 an ounce after yesterday's huge rally of $30 an ounce. It settled today at $1,226.40 on the Comex division of the New York Mercantile Exchange. 

Today's Economic Reports

The Dow Jones Industrial Average followed up yesterday's run to the upside with another session in the green. The large-cap index rose 40.43 points in today's trading to finish at 10,309.24 points. It looks like the index is trying to make it two winning weeks in a row, which would signal a nice rebound in the overall Market. Let's see if it can continue moving north over the next two sessions.   

The S&P 500 also had a nice 4.64 point advance in today's trading. The index nearly got back to the 1,100 point mark today, falling just a half-point short at the closing bell. Now that it has broken above its 20-day moving average (light blue line), we want to see how it handles its 50-day moving average (red line). If it can make it back above this barrier, it could be another big move to the upside. However, if it retraces back from this level, we might get another round of selling.

It was another outstanding session for the Nasdaq Composite. Techs continue to lead the way and they continue to be strong this week. The Nasdaq surged 12 points in today's session to finish the day at 2,226.29 points. With the tech-laden index now sitting just below its 50-day moving average (red line), it should make for a very interesting finish to the trading week.

The strong session for stocks meant trouble for the VIX (CBOE VOLATILITY INDEX). With anxiety waning this week, the VIX has continued to fall apart. It shed another 0.53 of a point in today's trading to finish the session at 21.72. Let's watch to see how it handles its 50-day moving average (red line) on the chart. A break below it should be a very good news for the bulls.

We had one remaining hurdle this week and that was our earnings report for PCLN. With a very large cushion heading into the release, we felt no pressure to close this one out early. Keep in mind that this had grown to nearly 43 points by the time trading was done today.

After the close, the company came through with another outstanding report. We've been bullish on the fundamentals of PCLN for quite a while and the company continues to encourage us. It blasted by expectations, beating the Street's forecast by $0.31. The only real concerns came over somewhat mixed guidance from the company. However, we're quite used to the company remaining conservative in their guidance because they always want to be able to beat the number with ease, like today. The five-minute chart below shows how the stock has responded in after-hours trading tonight.

With PCLN really being the only hurdle this week, we shouldn't have much to worry about the rest of the week. Unfortunately, it was one of those "woulda, shoulda, coulda" cycles when it comes to our OEX spread. But let's not dwell on what could have been, let's start focusing on how we're going to make that money back and get a new winning streak started in March. With the sentiment moving back towards the bullish side of things, we're likely to come back with put spreads on Sunday night. But first, we want to see how everything plays out the rest of the week. For now, let's take a look at the rest of our positions that expire at the end of this week.

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10)

PCLN CLOSED AT $212.87 Today (42.87 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

Although the stock closed at $212.87 today, we know that it's not going to open up there. After tonight's release, it gapped up above $230 a share but has then been pulling back since then. However, the selling has been on lower volume, which is a very good sign. We wouldn't be surprised to see it open up in the mid 220's tomorrow morning, but that could also depend on the futures and the release of tomorrow's initial claims. Barring any surprises tomorrow morning, we should be able to sit back and enjoy the ride in this one the rest of the week.

RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

RUT CLOSED AT $624.83 Today (64.83 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $565.00

RUT 530-520 BULL PUT SPREAD (10 Contracts entered on 01/25/10)

RUT CLOSED AT $624.83 Today (94.83 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $535.00

The RUT just keeps marching higher this week. With a huge cushion already in place heading into this week, we really didn't need another push to the upside, but that's what we got. The index has regained its upward momentum on the chart, which should set up for another great put spread or two next month. As you know, we love to layer this index with a couple of spreads anytime we get a pull-back like we did this month. Let's be on the lookout for the same thing next month.

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

OEX CLOSED AT $505.27 Today

Original Credit of $45.00 per contract

Close-out Debit of $365.00 per contract

Final Loss on Spread of $320 per contract

OEX 460-450 BULL PUT SPREAD (10 Contracts entered on 01/28/10)

OEX CLOSED AT $505.27 Today (34.90 points away from our put spread)

Profit potential of $45.27 per contract

Contingent Stop Order set at $427.50

We came so close to turning two profits in this index, just like the RUT. But that didn't happen. With the index continuing to move higher with the overall Market, we shouldn't have any concerns with our remaining put spread. We have tons of breathing room and not a lot of time. For any of those members that rode out the 480-470 put spread, you should be in great shape with two profits in this one. Our hats go off to you!

As always, Trade Happy and Trade Smart

Tech stocks rally but the rest of the Market struggled with concerns over China and Europe. The Nasdaq helped fuel a turnaround on Friday, but traders remained concerned about China's attempts to slowdown its economy and concerned about Europe's problems with Greece and fledgling economic growth. While the major indices finished mixed on the session, it was still the best week across the board for the indices since the start of the year.

The Chinese government instructed banks to increase their reserves for the second time this month. According to officials, they are attempting to just slow the pace of lending. Regardless of what they say, this seems to raise the fear level here. At the same time, the euro zone GDP came out showing that fourth quarter GDP was barely positive, much worse than analysts had predicted. When we combine this with China and the continued concerns over Greece, it was kind of hard to be a buyer on Friday.

Although the Market gapped lower on the open Friday morning, it wasn't because of the retail sales numbers that were released. According to the Commerce Department, January sales growth was quite a bit better than analysts had predicted. Instead of the 0.3% growth, the actual retail sales figure grew by 0.5% last month. To add to optimism Friday, the previous retail sales report was revised upward from an earlier report of -0.3% to -0.1%. The chart below shows the nice upward trend in the report.

In another report that came out mid-morning on Friday, consumer sentiment pulled back slightly in the first part of February. The University of Michigan's index of consumer sentiment showed a decline to 73.7 for the first few weeks of February. Although this is just the initial reading for the month, it was down from 74.4 in January and under the Street's expectations. The good news is that this number could easily be revised upward when the final report for February is released in two weeks. Similar to what we said about the last report, the good news is the rising trend in the index. The only downside is the lack of steepness in this trend, but it's certainly hard to complain too much about that considering the rest of the economy. Gold traded in a similar fashion last week, falling $4.70 an ounce on Friday but still finishing the week at $1,090 a troy ounce.

Last week's crude inventory report was pushed back two days because of the weather conditions on the east coast. The data was released on Friday and was bearish with the Energy Information Administration's announcement of a 2.4 million barrel increase in stockpiles. This was above the 1.3 million increase that analyst were expecting and when combined with the weakness in other commodities on Friday, spelled trouble for oil. Crude finished the session down $1.15 a barrel at $74.13 a barrel on the New York Mercantile Exchange. Despite this downturn on Friday, oil was still able to climb nearly 4% for the week.

Today's Economic Reports

After the rough start to the week, the Dow Jones Industrial Average was able to bounce back to its winning ways. Although the large-cap index fell 45 points on the final session, it still managed to advance 86 points on the week when it closed at 10,099 points Friday afternoon. In each of the last three trading days of the week, the Dow was down a fair amount before bouncing back towards the end of the trading days. While it wasn't able to make it back into the green on Friday, it was able to pare much of its loss from earlier in the session. However, it does appear to be bumping up against some resistance at 10,150 on the daily chart. If it's able to make it through this barrier, we could see another positive week for the Dow. If not, the volatility could kick back into high gear.  

The S&P 500 also struggled on the final trading day of the week when it slipped nearly 3 points to finish the week at 1,075 points. Even though it fell on Friday, it still managed to post a 9 point gain for the week, marking its best weekly performance since the first trading week in January. Similar to the Dow, the S&P 500 appears to be bumping up against a resistance level during Thursday's and Friday's trading. Let's see if it can make it through this level at the beginning of this week and make it two winning weeks in a row.

The Nasdaq Composite led the way higher on Friday when it finished 6 points into the green at 2,183 points. This also personified the week for the tech-laden index. It more than doubled the other two indices with its 1.98% advance last week. Unlike the other two indices, it has a little higher to go before running into any significant resistance. Let's keep a close eye on the 2,190 point level on Tuesday to see if there's any selling that hits the Nasdaq at this level. If not, it should continue to lead the way higher.  

Perhaps the best news last week was the deterioration in the VIX (CBOE VOLATILITY INDEX). On Thursday, it broke back below its 200-day moving average (black line) and then continued to tumble on Friday when it lost 1.23 points and closed at 22.73 points. As long as it continues to fall, the Market is probably headed higher.

All in all, we came through last week in excellent shape. All of our cushions got increased as everything seemed to be heading north. Even with the small pull-back for some on Friday, we still had a great week for our put spreads. What makes this even better is that the Market is closed on Monday due to Presidents Day. Remember, because we're selling option premiums, it's like we're getting paid to take a day off. We love holidays like this during the options cycle.

We might have one little speed bump this week with PCLN's earnings set to be released, but we have a huge cushion in this position. We'll discuss this in more detail in a bit. For our remaining put spreads, we really couldn't ask to be sitting much better. This should help us enjoy tomorrow's vacation just a little bit more. With that said, let's take a look at each spread in detail to see how we're sitting heading down the home stretch.

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10)

PCLN CLOSED AT $207.78 Today (37.78 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

PCLN's only losing session last week was on Friday when it gave back 1.12 points. Usually when a position finishes at its high of the session, it would be a nice advance. But with Priceline's gap lower on Friday morning, it made it difficult for it to make it into positive territory by the end of the trading day. We were certainly helped out last week from some analyst upgrades, which moved the stock back above its 20-day moving average (light blue line) and held it there the rest of the week. This area has now become some nice support for the stock.

We currently have a huge cushion in this spread, but we do have an earnings report set to be released on Wednesday after the closing bell. As of now, we feel that we have plenty of room between the stock and our "short" strike price. Even with an earnings miss, we feel that we'd still be in a fairly safe place with our put spread. While this might change before we get to Wednesday, our plan is to ride this one out. However, if anyone is feeling uncomfortable with this decision, you can always close your spread out ahead of time. If anything makes us reconsider our plan, we'll send out an alert.

RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

RUT CLOSED AT $610.72 Today (60.72 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $565.00

RUT 530-520 BULL PUT SPREAD (10 Contracts entered on 01/25/10)

RUT CLOSED AT $610.72 Today (80.72 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $535.00

What a performance for our small-cap index! The RUT gave us four straight green candles, capped off with a 5.26 point advance on Friday. This took the index up to 610.72 and should seal two profitable put spreads for us this month. As we said early on this cycle, we love to layer this index up with extra spreads each month and this is exactly why. When it does drop for us, it usually is just giving us another chance to pick up some easy money. We should be able to sit back and coast to the finish line in both of these positions.

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

OEX CLOSED AT $494.90 Today

Original Credit of $45.00 per contract

Close-out Debit of $365.00 per contract

Final Loss on Spread of $320 per contract

OEX 460-450 BULL PUT SPREAD (10 Contracts entered on 01/28/10)

OEX CLOSED AT $494.90 Today (34.90 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $427.50

After making it past the ugly start to the week on Monday, the OEX was able to put together a strong performance over the next four trading sessions. Although it fell 1.68 points on Friday, it still posted a solid gain for the five trading days when it closed at $494.90. The index appeared to build some nice support in the area of $490 on the chart, which should now be a very strong level for the index. With so much breathing room in our remaining put spread, we shouldn't have anything to worry about this week. It's just a shame that we still weren't in the other spread as well.

As always, Trade Happy and Trade Smart

Stocks slide heading into the close, but the shocking part of the day was very little movement. After weeks of rampant volatility, the Market took a breather. It felt like the east coast snow storm blanketed the action on the Street, with very little volume or movement in the indices. Of course, after all the triple digit moves we've seen over the past two weeks, it was nice to see the opposite side of the spectrum today.

Some red showed up in the Market this morning when Federal Reserve Chairman Bernanke started giving details on how the Fed was to pull back from its liquidity programs. In his testimony before the House of Representatives Financial Services Committee, the Fed Chairman talked about the need to closely track the rate paid to banks on excess reserves held at the Central Bank. Bernanke saw this rate as more important than the federal funds rate in the near term. But he also threw the Street a bone when he said that the benchmark rate should stay near zero for a while longer.

As we all know, speculation over when the Fed was going to raise this rate has been running rampant over the past several months. This is what traders seem to focus on when the policy statement is released after every FOMC meeting. With the Chairman stating that this will stay near zero for a while longer, he helped calm the fears on the Street.

The rest of the news today focused on the European rescue plan for the country of Greece. After a week of speculation, word leaked out that France and Germany were ready to offer a plan to the European Union later this week. According to news reports, the plan would allow Greece to avoid going bankrupt. Of course, the day was full headlines contradicting each other on whether or not the countries had reached an agreement over the plan. All we know is that anxiety was down and as long as some type of agreement is reached, we should be able to move this story to the back burner for now.

With the crude inventory report pushed back until Thursday, the lone economic report was from the Census Bureau. It showed a widening of the U.S. trade deficit from $36.4 billion in November to $40.2 billion in December. According to the government, this was mostly due to an increase in crude imports. That sounds slightly fishy to us because we've been hearing week after week from the Energy Information Administration about how demand is so weak. If this report is true, then there must have been quite a cut in domestic production in December; but it really has very little importance on the Street.

The snowstorm on the east coast was to blame for the jump in crude today. It rose $0.77 to $74.52 a barrel on the New York Mercantile Exchange. Of course, the rise in crude today happened at the end of the session, which left many to wonder if it was more "short"-covering than actual "long" bets.

Today's Economic Reports

The Dow Jones Industrial Average finished the mild session with a slight loss, giving back 20 on the day. This 0.20% decline takes the large-cap index down to 10,038 points, but leaves it above the 10,000 point level at the close. In yesterday's action, the index appeared to run into some trouble after running up to the 10,150 point area on the chart. Let's see if it can make it back above this line and work its way back to its 50-day moving average (red line). If not, let's keep a close eye on last Friday's low on the daily chart because a break below this could cause some heavy selling once again.

The S&P 500 also couldn't find positive territory at the end of the session, slipping 2 points to 1,068 points at the close. The index still has a nice gain working for it this week, thanks to yesterday's big gain. However, the S&P 500 had a nice gain going for it last week at this time before the heavy selling came into the Market. Let's see if can avoid a repeat this week. As in the Dow, let's keep an eye on Tuesday's high near 1,080 points and last week's low from Friday's session. A break above or below either of these areas could be a big momentum move. Of course, we wouldn't mind more sessions just like today instead.

The Nasdaq Composite also gave back a little bit in today's session when it lost 3 points and finished at 2,147. Like the other indices, it remains up on the week but that could easily change with two more trading days left. Let's keep an eye on 2,165 where it topped out on Tuesday and last week's low near 2,100.

The VIX (CBOE VOLATILITY INDEX) gave a little back today when it dropped 0.60 of a point to finish the session at 25.40 points. But it still remains elevated and is hovering along its 200-day moving average (black line) on the chart. This fact alone is not good news. We would like to see the index drop back below this line and continue falling. If not, we're likely to see plenty more rough and tumble sessions ahead.

Today was a nice change of pace. After the wild ride we've been on lately, it was nice to see volatility take a back seat to some more sedated sessions of trading. Stocks barely moved today as the news cycle seemed to die down amid the snowstorms on the east coast.

After the nice run we had earlier in the week, there's nothing better than the doldrums that we encountered in today's session. Now if we can just keep things this calm until expiration we should be able to make it to the finish line without any more pain this month. With not a lot to dissect from today's session, let's just take a look at how each of our spreads are sitting heading into the rest of the week.

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10)

PCLN CLOSED AT $206.40 Today (36.40 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

PCLN has been on a terror this week, which has been great for our put spread. An analyst upgraded the stock on Monday and it hasn't slowed down since. It defied the selling in today's session when it rose $1.02 when everything else was in the red. Priceline moved back above its 20-day moving average (light blue line) on the chart with its closing price of $206.40. While we still have a long ways to go in this spread, we like how we're currently sitting with a cushion of 36 points. Let's see if it can make its way back to its 50-day moving average (red line) that is currently in the area of $213 on the daily chart.

RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

RUT CLOSED AT $595.82 Today (35.82 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $565.00

RUT 530-520 BULL PUT SPREAD (10 Contracts entered on 01/25/10)

RUT CLOSED AT $595.82 Today (65.82 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $535.00

The RUT also held up fairly well today. The small-cap index managed to close up fractionally with a $0.65 gain today. This adds to yesterday's advance and leaves the index at $595.82 heading into the final two trading sessions of the week. We like its upward momentum, but want to see if it can continue moving higher during the final two trading days of the week. The next resistance level that we see on the daily chart is in the area of $600. This was an old support and resistance level for the RUT numerous times in the past six months. Let's see if it can break through it this time.

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

OEX CLOSED AT $492.21 Today

Original Credit of $45.00 per contract

Close-out Debit of $365.00 per contract

Final Loss on Spread of $320 per contract

OEX 460-450 BULL PUT SPREAD (10 Contracts entered on 01/28/10)

OEX CLOSED AT $492.21 Today (32.21 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $427.50

After the red start to the session, the OEX spent the rest of the morning working its way up the chart. But after finding itself in positive territory around the noon hour, it was once again hit with some more selling. Although its movement was certainly limited today, the OEX finished the day 0.75 of a point in the red at the bell. But even with this loss, we're still sitting better tonight than we were on Sunday night. Let's see if we can increase the amount of breathing room in our put spread over the final two sessions of the week.

As always, Trade Happy and Trade Smart

It was another unbelievable session on Friday. Unfortunately, it turned out to be a painful one for one of our put spreads......by just a hair. While the start to the session was exactly what we needed, the selling quickly took over and the early afternoon tumble gave us plenty of heartburn. But as soon as the damage was done to one of our put spreads, the whole Market reversed and headed higher.....adding insult to injury for us.  

The pain that we encountered on Friday wasn't that obvious at the beginning of the session. The unexpected drop in the unemployment rate helped lift pre-Market trading on Friday morning. Ahead of the release, futures were trading quite a bit lower from Thursday's close. But the surprising drop in the unemployment rate really took traders by surprise. The Street was expecting a slight uptick from December's 10.0%. But instead of coming in at 10.1%, which analysts had predicted, the unemployment rate for January dropped to a five-month low of 9.7%. The positive news from the Labor Department turns the trend upward on the chart and leaves many wondering if we've seen the unemployment rate top out.

Graphic from Briefing.com

Usually it's the non-farm payroll that's the big report, but that wasn't the case Friday. However, the data still is very important to the Street. Friday's release was slightly worse than traders were hoping for. It showed a loss of 20,000 jobs in January compared to expectations of a flat reading, where the economy might have added some jobs last month. While it wasn't as good as we would have like to have seen, it was much better than the loss of 150,000 jobs that we saw in December. There also was a bright spot in the release when the government revised November's number to show an actual gain of 64,000 jobs. This was much better than the increase of 4,000 jobs that was reported previously.

Graphic from Briefing.com

Crude appeared to be leading the way lower on Friday with the commodity continuing its slide for 2010. It was able to pare some of its loss on the day, but still finished the session off $1.95 a barrel at $71.19 a barrel on the New York Mercantile Exchange. The interesting thing is that trading volume was nearly double what is usually traded, which is not a good sign when the commodity is falling. It was a tough day for commodities in general, with gold declining $10.20 at $1,052.20 a troy ounce.

A lot of the doomsday experts were pointing to the problems in Europe on Friday, saying that defaults by European nations are ever so close to happening. We've known about the problems in Greece for a while now and haven't heard anything new on Friday. However, the talking heads were bringing this scenario up on Friday, as well as, old news out of China about the government attempting to cool down the economic growth.

While we're certainly concerned about all of the economic events that have been unfolding as of late, we find it annoying that the media will pump up certain issues on a day that we actually received plenty of good economic data. Now if the unemployment rate would have jumped and the job loss was significant, then we wouldn't have had an issue with all of the doom and gloom on Friday. But there's nothing we can do about things that are out of our control, so let's not complain about them, but rather, take a look at how the daily charts look for the indices after that wicked session.

Friday's Economic Reports

What a session for the Dow Jones Industrial Average! After dropping right through the 10,000 point mark, it looked like the large-cap index was falling off a cliff with a loss of 167 points at one time on Friday. But the last hour of trading was like a moon-shot for the index, not only erasing that hole but actually finishing the session up 10 points at 10,012. Talk about needing some Dramamine after that rollercoaster ride of a trading day. On the chart, we drew another line below the reversal point on Friday, but it's really a fools' game to try to pick the turnaround levels for this type of a trading environment. It's even funnier that the index closed back above our old support level at 10,000 points. At the same time, the daily candle is usually known for signaling a reversal for downtrends. But once again, it's hard to put any faith in technicals when so many outside variables are involved.

The S&P 500 gave us an equally nasty trading pattern on Friday when it tumbled and then recovered in the last hour of the session. The index finished the day up 3.08 points, remarkably enough at 1,066 points. It's just simply unbelievable unless we lived through a year and a half ago when this type of trading was the norm. On the chart, we wouldn't be surprised to see the index eventually fall to its 200-day moving average (black line). Hopefully it's not very soon, but this would be the logical resting point before we get a reversal.   

The Nasdaq Composite was the strongest index all day long, but that still didn't stop it from falling hard early in the afternoon. However, it was the one to lead us out of the hole on Friday on its way to a 15.69 point advance. This 0.74% gain on Friday helped the index finish the week at 2,141 points.   

The wild swings of the session are evident when we look at Friday's candle for the VIX (CBOE VOLATILITY INDEX). The massive upper shadow shows just how rampant fear ran on Friday, only to see it dissipate during the final hour of the session. While it moved up only 0.03 of a point on the session, it remains up over 20% since Tuesday with its closing price of 26.11 on Friday. The "fear" index is back above its 200-day moving average (black line), which is never a good sign. Let's see if it holds above this barrier or falls back below it when trading starts this week.

During our impressive run of 12 straight profitable months, we were able to keep any loss small while putting together some very nice profits. Has the Market changed since this time? Not really. We had some very bumpy months, the VIX alone shows this. However, the last couple of months have just given us some very unlucky sets of events. On Friday for example, the OEX bottomed out right at our "stop" before it reversed and headed higher. The intraday five-minute chart shows this below.

This is what makes trading so hard on us mentally. Trading like this has just killed us during the last few months. We went to a more conservative approach of using stops about a year and a half ago and it has worked extremely well. But when we do this, there're going to be events like this that just drive us nuts.

It's always a trade-off between placing our stops higher to reduce the potential loss to leaving them lower to give us more opportunities to make it to the finish line, without getting stopped out of trades like we were on Friday.

Of course, we had another issue on Friday with the VIX skyrocketing and pumping up the premiums in the strike prices. This increases the loss anytime we need to close out a spread. But this move on Friday certainly exaggerated the loss that anyone would expect to take. Of course, if we could have made it to next week, we would have had some more time decay tick away in our premiums. But the huge spike in the VIX is what really killed us on closing out this spread. Talk about artificial sweetening....this was artificial inflating. Even during our winning streak we would take on a loss similar to this, but would still be able to walk away with a profit for the month. But Friday's rampant VIX wiped away that profit potential this month.

There's nothing we can do about that now. It's just a matter of getting the rest of our positions home free and then making back that loss next month. Certainly any loss is more than we ever like to see, but let's keep things in perspective. We can easily make this one back, but let's get the rest of our spreads to expiration before we get started on next month.

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10)

PCLN CLOSED AT $196.96 Today (26.96 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

The noon hour was devastating for PCLN on Friday, along with the rest of the Market. The stock hit a 20 minute time frame that took it from nearly $197 a share down to $193 and some change. Now that was a heavy stretch of selling. While it did recover some of that loss late in the session, it still wasn't able to make it back to positive territory. It finished the week at $196.96. On the chart we wanted to see the stock start making its way back up towards its 20-day moving average (light blue line). While we still have plenty of time left and a big cushion in this spread, it looks like we might have plenty of excitement left in this one with the company moving its earnings up to next week. Let's not get too concerned just yet because we still have a very large cushion in this spread and want to sit tight for now to see how things unfold this week.  

RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

RUT CLOSED AT $592.98 Today (42.98 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $565.00

RUT 530-520 BULL PUT SPREAD (10 Contracts entered on 01/25/10)

RUT CLOSED AT $592.98 Today (62.98 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $535.00

The RUT also made a nice U-turn at the end of the day on Friday. By the time the closing bell rang, it was actually up 3 points at 592.98. However, it still shed 1.5% for the week and now sits at a negative 5.2% for 2010. Heading into the new week, both of our spreads remain in fairly good shape for the time being. As long as we avoid several more sessions like last Thursday, we like our chances in both of these positions. Let's see how the trading looks at the beginning of this week.

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

OEX CLOSED AT $491.34 Today

Original Credit of $45.00 per contract

Close-out Debit of $365.00 per contract

Final Loss on Spread of $320 per contract

OEX 460-450 BULL PUT SPREAD (10 Contracts entered on 01/28/10)

OEX CLOSED AT $491.34 Today (31 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $427.50

As we mentioned earlier, it's always tougher when we get filled at the bottom and that's exactly what appeared to happen on Friday. In our previous newsletter, we incorrectly listed our second put spread, but the correct put spreads were both shown on the chart. We hope this didn't cause too much confusion. For our remaining put spread (460-450), we're sitting much better thanks to the late-day rally. We also have tons of support levels on the chart, as well as, its rising 200-day moving average (black line). Even if the index still tumbles, the 200-day should hold it up long enough to help us get to expiration in this one.

As always, Trade Happy and Trade Smart

After a red hot start to the trading week, stocks cooled off in today's session. While most stocks finished the session in the red, it wasn't too painful thanks to the huge rally we had on Monday and Tuesday.

After a great start to the trading week, stocks started the session to the downside. It appeared that the disappointment on the earnings from Pfizer and more repayment talk from the financial sector caused traders to lock in some gains from early in the week. While most of the session was in the red, it was encouraging to see the losses stay small thanks to a nice run to the upside this afternoon.

However, there was some very good news from the ADP employment report that was released this morning. According to the company, only 22,000 jobs were cut in January, marking the fewest number of losses in two years. This number was also better than the 30,000 job loss that the Street was bracing for and lays the groundwork for possibly a better reading in Friday's non-farm payrolls. At the same time, ADP revised the prior report of 84,000 jobs losses in December down to only 61,000. These are very good indications heading into Friday's report, in which analysts are currently looking for no change in the non-farm payrolls but a slight increase in the unemployment rate to 10.1%.

In other economic data, the Institute for Supply Management reported that its services index increased to 50.5 in January. This reading was slightly below expectations but up from December's number of 49.8. Today's reading above 50.0 means that there's expansion taking place in the service sector. This followed Monday's ISM report on the manufacturing sector, which showed the most activity taking place in over five years.

Graphic from Briefing.com

Crude has bounced back this week and was helped out today by the weekly Energy Information Administration's inventory report. According to the government, oil inventories rose by 2.3 million barrels last week while gasoline supplies fell by 1.3 million barrels. However, demand remains anemic, over 2% lower than last year at this time. But the real story is that refiners are continuing to slash refining levels. Last week, capacity fell to 77.8% as refiners are attempting to match demand with the huge supply that remains. While crude was up for most of the session, it slipped at the close. It settled down $0.25 a barrel at $76.98 a barrel on the New York Mercantile Exchange.

Today's Economic Reports

The Dow Jones Industrial Average nearly made it three green days in a row this afternoon, but just couldn't quite make it back to positive territory by the time the closing bell rang. The large-cap index finished the session down only 26 points at 10,270. Despite the loss, it was encouraging to see the Dow finish near its high of the session. Let's see if it can keep moving higher the rest of the week and keep closing in on its 50-day moving average (red line).

The S&P 500 also gave us two strong sessions to start the week on Monday and Tuesday. However, it just couldn't keep that trend going in today's trading. The index slipped 5.08 points to finish the day at 1,098. But similar to the Dow, it was a good sign to see the index finish well off its low of the session and close to its high. Let's also watch to see if it's able to make its way back towards its 50-day moving average (red line) over the next two sessions.  

The Nasdaq Composite was definitely the strongest of the three major indices today as it surged higher for the third straight day. The tech laden index advanced 0.85 of a point today to push the index up to 2,190 points. Although it wasn't as big a gain as we saw on Monday and Tuesday, we'll certainly take it. Let's see if the tech stocks can help pull the Market higher over the rest of the week.  

All of the bullishness in the Market on Monday and Tuesday caused the VIX (CBOE VOLATILITY INDEX) to take a nose-dive. The "fear" index tumbled on the first two trading days but then increased a 0.16 of a point in today's trading. This leaves the VIX just above its 50-day moving average (red line) at 21.65 points. We'll be watching to see if it holds above this line or slips back below it.   

We finally got the bounce that we had been waiting for. With the Market reversing its recent downtrend on Monday, we saw our cushions start to build back up again, especially with two big green days working in our favor. While we might not be convinced that the ugliness is over just yet, the extra breathing room sure makes our spreads look a whole lot better this week.

Remember, the key with our style of trading (this month) is that we don't want to see several days in a row of selling. We usually don't mind even the big down days, as long as we get a few sideways days in between or even a small retracement. Of course, we went several days in a row this cycle with nothing but selling and we're still sitting just fine. Actually, it's quite remarkable how well we're sitting in all our positions when we consider how far the Market dropped this cycle. Other than our original OEX put spread, we aren't feeling much pressure from any of our spreads.

However, we got a taste a few weeks ago of just how fast this thing can turn, so let's be prepared for anything. Let's make sure our contingency stops are set and working just in case we need them this month. In the meantime, let's hope for some sideways action the rest of the week and for an uneventful session on Friday with the release of the unemployment rate and the non-farm payrolls.

Of course, if we get a surprisingly good report, this could fuel a nice rally that would leave us in great shape heading into the final two weeks of the February cycle. But with this out of our control, let's just focus on how our spreads are sitting heading into the final two trading days of this week.

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10)

PCLN CLOSED AT $208.53 Today (38.53 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

After a tumultuous finish to last week, PCLN has turned around that momentum pretty quickly. The stock has pushed higher in each of the past three sessions and advanced $4.11 in today's trading alone. The stock was helped by a mention in the Wall Street Journal online addition, which helped give the stock plenty of relative strength on a day that wasn't too eventful for the rest of the Market. Its closing price of $208.53 leaves our put spread in great shape as the stock is now sitting just below its 20-day moving average (light blue line) on the chart. Let's see if it can make it back above this barrier and then test its 50-day moving average (red line).

RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

RUT CLOSED AT $610.66 Today (50.66 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $565.00

RUT 530-520 BULL PUT SPREAD (10 Contracts entered on 01/25/10)

RUT CLOSED AT $610.66 Today (80.66 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $535.00

The small cap index started the week on fire, but then cooled down once it hit its 50-day moving average (red line) on the chart. The index made it back up to this line in today's trading but then retraced. It finished the day down 3.39 points at 610.66. While we'd like to see it make it back above this barrier. Both of our put spreads are sitting in excellent shape for the time being.

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10)

OEX CLOSED AT $505.99 Today (25.99 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $482.50

OEX 425-415 BULL PUT SPREAD (10 Contracts entered on 01/28/10)

OEX CLOSED AT $505.99 Today (80.99 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $427.50

The OEX was our main concern heading into this week, but that concern has eased quickly, thanks to the index's big move to the upside. The S&P 100 took off like a rocket on Monday and then continued that move on Tuesday. This pushed our cushion back up in our two OEX put spreads and gave us some immediate relief. The index stalled in today's session with it giving back 2.38 points when it closed at 505.19. But even with this small pull-back, we like how we're sitting heading into the rest of the week. We have our breathing room built back up in these put spreads and like the newfound bullish momentum. Let's see if this push to the upside can continue for us.

As always, Trade Happy and Trade Smart