As January goes, so does the rest of the year. If that has any truth this year, then it could be a bumpy road ahead. On Friday morning, the surprisingly strong GDP number jump-started the Market early on, helping stocks to shoot higher at the open. But it became a case of selling the news as the gains were erased in the afternoon with stocks heading lower into the closing bell. This capped off an ugly start to the year for the month of January. 

 

The early morning bump was fueled by the huge spike in the nation's fourth quarter Gross Domestic Product that grew for the second straight month. The growth of 5.7% came in much better than the 4.7% that the Street was expecting. It also marked the biggest surge in GDP since 2003. The jump was driven by business spending related to equipment and software. While this number was very good news for the economy, analysts expect things to slow down as government stimulus winds down; not to mention, business inventories have now been replenished for the most part and if unemployment remains high, consumer spending will likely dry up as well.

 

 

Friday was a fairly good day for economic data all around. The Chicago Purchasing Managers' index for January rose to 61.5 from the previous reading of 58.7. Besides the nice upward trend in the index, Friday's release was also much better than the 57.2 that analysts had predicted ahead of time.

 

Keeping up with the trend, the Reuters/University of Michigan survey of consumer confidence also surprised the Street, in a good way. Its final reading for January came in at 74.4, which was above expectations and above the initial reading from two weeks ago. All-in-all, there was very little to complain about in Friday's session, as far as economic data was concerned.

 

 

 

Besides all of the great economic data on Friday, there were also bright spots from FOMC member, Kohn, who in a speech stated that interest rates are very likely to remain near zero for an extended period of time. Lately, it seems like there has been plenty of speculation that the rates might be headed higher in order to fight possible inflation concerns down the road. Additionally, the other issue is of creating another bubble due to the relatively cheap money that has been created by the government. Usually, speeches like this would have helped add fuel to the rally on Friday, but that just wasn't the case.

 

It continued to be a rough road for crude last week. Although the GDP number should have helped the price of oil, it just didn't happen on Friday. Crude climbed in the morning, but finished the session off 1% at $72.89 a barrel on the New York Mercantile Exchange.

 

Today's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 29	08:30	GDP-Adv.	Q4	5.7%	4.7%	2.2%
Jan 29	08:30	Chain Deflator-Adv.	Q4	0.6%	1.3%	0.4%
Jan 29	08:30	Employment Cost Index	Q4	0.5%	0.4%	0.4%
Jan 29	09:45	Chicago PMI	Jan	61.5	57.2	58.7
Jan 29	09:55	University of Michigan Sentiment	Jan	74.4	73.0	72.8

 

The Dow Jones Industrial Average broke its monthly winning streak on Friday when it finished January down 3.46%. This broke its six-month winning streak and marked its second losing month in the past 11 months. On Friday, the large-cap index dropped 53 points to finish the week down 1.04% at 10,067. This also leaves the index just above the 10,000 support level on the chart. Let's see if it can hold above this psychological level in the upcoming week. A break below it could take the index down quite a bit farther on the chart.

 

 

The S&P 500 declined 10 points on Friday, taking the index down to 1,073 points. This locked in a 3.70% loss for the month of January, which is not a very good start for the year. It was also its worst monthly performance since February of last year. Friday's move leaves the index just above its support at 1,070 points on the chart. Let's see if this level can give the index some support this week.  

 

 

The Nasdaq Composite shed 31 points on Friday, capping a miserable week for the tech-laden index. The selling on the final day of the month locked in a 5.37% loss for the index in January. On the daily chart, the Nasdaq sliced right through a couple more support levels despite such a strong start in the morning on Friday. We really need a bounce this week and it might take a surprise to the upside in some of the upcoming economic reports.  

   

 

All of the concerns in the Market on Friday helped give a boost to the VIX (CBOE VOLATILITY INDEX). It spiked 0.89 of a point on the final trading day of the week, taking the "fear" index up to 24.62 points. While it did elevate the index, the VIX still remains below its 200-day moving average (black line) on the chart. Let's keep a close eye on this line as trading gets underway this week. A break above it means very bad news for the bulls.   

 

 

 

The good news is that we finally got filled in our second OEX put spread. The bad news is that we finally got filled in our second OEX put spread. While we wanted this second put spread because we thought it was an excellent opportunity to bring in some extra premium at very safe strike prices,  we weren't going to be very upset if the index headed higher last week, which would have prevented us from getting filled.

 

Well, we got the move higher Friday morning, but that didn't last. As we were watching the trading unfold Friday morning, we felt that the move to the upside wasn't all that convincing. This had us believing that we would see a sell-off in the afternoon and that's what we got. Anyone paying attention on Friday probably would have suspected the same thing because the internals just weren't as strong as they should have been considering all of the good news.

 

The good news for us is that we're one week closer to our payday (expiration). Unfortunately, we gave up quite a bit of our cushions late last week, which should make things more interesting later in the cycle. We just hope it doesn't get interesting sooner rather than later. Remember, we have some key economic data coming out this week with the non-farm payrolls being the key one late in the week. But on Monday, we still have some influential reports coming out with the Personal Income and Spending set to be released.

 

The thing we need to stress is that the statistics are on our side. Although a week like last one does get the anxiety a little heightened, it's important to step back and examine just how much breathing room we still have. As long as we can get a day or two of a relief rally, we should be able to get these big cushions built back up again. With that said, let's take a closer look at each of our put spreads as we prepare for the new week.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	170-165		15	0.40
RUT	Bull Put	560-550		15	0.40
OEX	Bull Put	480-470		15	0.45
RUT	Bull Put	530-520		10	0.40
OEX	Bull Put	425-415		15	0.40

POTENTIAL PROFIT

$2,675.00

 

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

PCLN CLOSED AT $195.35 Today (25.35 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

After showing us a great deal of relative strength last week, PCLN finally gave up some ground on Friday. The stock tumbled 6.33 points on the day, taking it right through one of our support levels. The good news is that it seemed to stay above our next one when it closed at $195.35. Let's see if the $195 level can hold up at the beginning of the week because a drop below this number could be a little problematic. For now, we're still sitting with quite a bit of breathing room so let's not get too concerned just yet.

 

 

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

RUT CLOSED AT $602.04 Today (42.04 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 $618.38 Today (72.04 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $535.00

Bye, bye 50-day moving average (red line on the chart). The small-cap index sliced right through this support level late last week, despite popping back above it Friday morning. However, the RUT couldn't hold there. It fell 5.89 points on the session, finishing the week at $602.04. The good news is that it appears to be holding above the next support level at $600.00, at least for now. Let's keep a close eye on this area on Monday to see if this one can fare better than the last one.

 

 

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

OEX CLOSED AT $495.09 Today (15.09 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 $495.09 Today (70.09 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $427.50

It was a ton of red last week for the OEX. The thing just couldn't find any strength on Friday despite a nice start to the session. The index finished the day down another $4.58 at $495.09. As we said earlier, the good news is that we were able to add another layer to our original spread last week, but we still remain concerned about our 480-470 spread. Let's make sure our stops are set and we're monitoring this one closely this week. If we can get a little bounce this week that should take some pressure off of this position.

 

 

As always, Trade Happy and Trade Smart

Stocks end the choppy session with a move to the upside. The afternoon got a little dicey after the FOMC decision was handed down, but a late surge in financials helped lift stocks heading into the closing bell.

 

The Market was in the red for most of the trading day thanks to some disappointing earnings from large-cap names such as Caterpillar. It also didn't help that AIG was in the headlines once again today, and not for anything positive. But after the usual swings following the FOMC policy statement, stocks surged late in the day.

 

As expected, the FOMC decided to keep interest rates unchanged this afternoon when the committee released its policy statement. The Federal Reserve did improve its economic forecast by mentioning that activity has continued to strengthen. However, some traders were taken back by one dissenting vote on the committee who wanted to take a more aggressive fight against inflation by raising rates. While it was only one vote, it did bring that argument of raising rates back to the forefront once again.  

 

There was more bad news in the housing market today when the new home sales number came in worse than expected. New home sales fell 7.6% last month, helping to lock in the worst year for home sales ever recorded. Besides the ugly number of 342,000 home sales (seasonally adjusted) for 2009, the poor reading in December was the fewest number of sales since last March. The weak performance will just help fuel the speculation that we still haven't hit a bottom in real estate. This should help keep pressure on the Fed to keep interest rates low.

 

Besides the President's State of the Union address tonight, there was another political event that captivated Wall Street earlier today. This was when current Treasury Secretary Geithner was testifying before a Congressional committee about his role in the AIG bailout. The Secretary was taking some serious heat over his former role as Chairman of the Federal Reserve Bank of New York. Representatives from both sides of the aisle hammered him all day long over his role in the $180 billion bailout and the withholding of information from Congress and the public. His testimony was filled with high drama and plenty of accusations, but there was nothing really new that came out of the hearings, just plenty of theatre for those watching.

 

There was more deterioration in the fundamentals of crude this morning when the Energy Information Administration reported another drop in demand last week. The government reported another decline in consumer demand, taking it down to a level below what we saw last year during the worst of the recession. But even with that lack of demand, oil prices remain double what we were seeing last year at this time.

 

While this morning's data showed a continued deterioration in demand, it also showed a surprising 3.9 million barrel drop in U.S. supplies. Ahead of the release, analysts were expecting an increase of 900,000 barrels last week. This helped keep the price of crude propped up for most of the session.

 

Today's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 27	10:00	New Home Sales	Dec	342K	366K	370K	355K
Jan 27	10:30	Crude Inventories	1/22	-3.89M	NA	-0.471M
Jan 27	14:15	FOMC Rate Decision	1/27	0.25%	0.25%	0.25%

 

Heading into the FOMC release this afternoon, the Dow Jones Industrial Average was sitting near its low of the session. Then right after the announcement, there was some heavy selling. But after this initial flush, the Dow headed higher, closing near its high of the session at 10,236 points. This 41 point climb on the day helped break its losing streak and leave a little optimism out there heading into the final two sessions of the week. Let's see if we can get a little bounce heading into the weekend.

 

 

The S&P 500 also made a nice late-day recovery. It managed to climb 5.33 points on the session, leaving the index at 1,097 points. Today's advance puts the S&P 500 up on the week, but not by all that much. We really want to get this index moving higher heading into the weekend because that would help out our OEX spread greatly.

 

 

The Nasdaq Composite was among weakest early in the day, but the afternoon push higher helped it lead the way up the chart. The tech-laden index finished the session up 17 points at 2,221. It also made its way back to just below its 50-day moving average (red line) on the chart. If we get another nice push to the upside, it should be able to break back above this line, which would be very good news for us. Let's see if this plays out over the next two days or if this line now becomes a resistance level for the index.

   

 

It's been an interesting week for the VIX (CBOE VOLATILITY INDEX). After moving above its 200-day moving average (black line) last Friday, it has fallen back below this moving average during the first three sessions this week. Perhaps this is the best news for the Market overall. A falling VIX should be good news for the bulls. In today's action, the index declined 1.41 points to finish the day at 23.14 points. Let's keep a close eye on this index the rest of the week.  

 

 

 

It certainly has been another interesting week for us. We managed to get a second layer filled on the RUT early in the week, but are having a difficult time doing the same thing with the OEX. The best thing about coming back with a second put spread at lower strike prices is that we're still picking up a decent premium with a put spread that is extremely safe.

 

With the OEX really struggling last week, we thought our second put spread on it would have been the first one to get filled this week. But that hasn't been the case. With the OEX taking away a big chunk of our cushion last week, we still want to add another put spread to help take away any pain this one might cause us down the road. Let's bring our new trade alert up a little bit higher and see if that will do the trick. But even if we don't get filled tomorrow, let's not feel too badly for ourselves because that would mean the index is moving higher. This would leave our original spread in even better shape than it is tonight. For now, let's take a look at how the rest of our positions are sitting heading into the rest of the week.

 

NEW TRADE ALERT (1)

 

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

 

S&P 100 INDEX (OEX)

OPENING 460-450 FEBRUARY BULL PUT SPREAD (10 contracts)

Sell 10 February Puts at 460 strike price

Buy 10 February Puts at 450 strike price

Total Credit 0.40 per contract

Potential Profit $400.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $462.50.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	170-165		15	0.40
RUT	Bull Put	560-550		15	0.40
OEX	Bull Put	480-470		15	0.45
RUT	Bull Put	530-520		10	0.40

POTENTIAL PROFIT

$2,275.00

 

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

PCLN CLOSED AT $207.52 Today (37.52 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

After a rough start to the week on Monday, PCLN has been all green since. The stock made a nice move upward yesterday and then added gain of $3.08 during today's trading. This leaves the stock at $207.52 heading into the final two days of this week. With over a 35 point cushion and some nice upward momentum now working for us, we like how we're sitting in this put spread.

 

 

 

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

RUT CLOSED AT $618.38 Today (58.38 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 $618.38 Today (88.38 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $535.00

It hasn't been an ideal cycle for our original RUT put spread, but things are definitely looking up after today's session. The small-cap index climbed 6.22 points and moved back above its 50-day moving average (red line) this afternoon. As we mentioned earlier, we feel even better now that we have two put spreads working for us this month. Both of our spreads are sitting with a ton of breathing room for just a little over three weeks yet to go in this cycle. Let's just sit back and see how things play out the rest of the week.

 

 

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

OEX CLOSED AT $505.54 Today (25.54 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $482.50

It got a little hairy once again this morning with the OEX dropping like a rock early on. The index dropped below the $500 mark as the FOMC decision was handed down and was looking extremely weak. However, a nice run to the upside helped the index recover and actually move it into green territory on the week. It's kind of hard to believe but we're actually sitting better tonight than we were on Sunday night. As we said earlier, we're still going to try to add some insurance to this position with another put spread, but if don't get filled that's just fine with us also.

 

 

As always, Trade Happy and Trade Smart

It was another tough session for our trade alert, but we're still going to keep it out there just in case we get another round of selling. Let's keep the trade the same for tomorrow and then re-evaluate on Wednesday night if we don't get the fill.

 

NEW TRADE ALERT (1)

 

S&P 100 INDEX (OEX)

OPENING 425-415 FEBRUARY BULL PUT SPREAD (10 contracts)

Sell 10 February Puts at 425 strike price

Buy 10 February Puts at 415 strike price

Total Credit 0.40 per contract

Potential Profit $400.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $427.50.

The volatility early in the session helped us go one-for-two in our fills on Monday. The movement helped us get into our second RUT spread for February, but wasn't enough to help us get filled in the OEX spread. For tomorrow, let's leave our OEX alert the same just in case we get another drop on Tuesday.

 

NEW TRADE ALERT (1)

 

S&P 100 INDEX (OEX)

OPENING 425-415 FEBRUARY BULL PUT SPREAD (10 contracts)

Sell 10 February Puts at 425 strike price

Buy 10 February Puts at 415 strike price

Total Credit 0.40 per contract

Potential Profit $400.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $427.50.

It just kept getting uglier. It started on Wednesday and then got worse as the week went on. With politics back front and center in the Market, news out of Washington D.C. caused shockwaves over the final two trading days of the week. From the administration taking on the big banks to the uncertainty surrounding the re-appointment of Fed Chairman Bernanke, the news caused traders to sell fast and sell hard heading into the weekend. All of the political news came on the same week that earnings were supposed to be the driving force behind the Market’s move. From financials like American Express to big cap names like Google, there was a trend of topping expectations last week but still getting hit hard by heavy selling.  The President’s strong warning to Wall Street on Thursday sent shockwaves across the trading floors and certainly stirred things up in a hurry. He threatened to limit risk-taking by banks and to let the government decide what type of investing these financial institutions will be able to do in the future. This ignited the selling on Thursday, which didn’t let up on Friday. Adding to the concerns from Thursday, the final trading day of the week was rocked by news that Congressional leaders are ready to vote against the re-confirmation of the Fed Chairman. Uncertainty is never good for the Market, and we got a good dose of this last week. While we haven’t been the biggest supporters of Bernanke over the past year, we also believe that if he is not confirmed, we’re likely headed to a period where there’s much less independence at the Federal Reserve. The independence and non-political voice of the Fed is something that is certainly in doubt if he is not confirmed. Of course, some of his actions over the past two years have given his critics plenty of ammunition in this area, questioning his objectivity and independence already. Some have questioned whether his support of the Treasury bailouts was because he was trying to get reappointed for a second term. We tend to side with some of these critics, of course it’s always easy to second-guess his actions. But even with this said, we don’t like the political grandstanding that’s going on either. Increased doubts in the economy caused crude to dip for the third straight session on Friday. A struggling economy means less demand for crude. This caused oil to slide another $1.54 on Friday to $74.54 a barrel on the New York Mercantile Exchange. Over the past two weeks, oilshed 10% and appears to be headed lower unless we get something unexpected this week. Let’s keep a close eye on the $70 mark over the next five sessions. Crude followed suit on Friday, but was able to recover some of its losses at the end of the day. Despite this bounce, it still gave up $13.50 an ounce on Friday to finish the week at $1,089 a troy ounce. Friday’s Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
		None.

The Dow Jones Industrial Average suffered its largest loss since the end of October on Friday when the large-cap index tumbled 216 points. This 2.09% loss took the Dow down to 10,172 points and wiped away its gain for the year. This also marked the Dow’s largest three-session drop in over a year. On the daily chart last week, the index broke below its 20-day moving average (light blue line) and its 50-day moving average (red line). While it did close just above another support level on Friday, it’s going to take a sentiment change on Monday to keep this thing from falling farther. 

  The S&P 500 also took a beating last week with all ten sectors falling on the day. While there were only four trading days last week, this didn’t prevent the S&P 500 from taking a 3.9% tumble. It shed 44 points for the four trading days, which included a 24 point drop on Friday that left the index at 1,091 points. The troubling thing on Friday was that the index broke below its 50-day moving average (red line) and then kept moving lower. This week, let’s watch to see if the index can take a break from the selling and retrace.
    The Nasdaq Composite held up the best out of the three major indices last week, but still had a 3.6% drop over the four trading days. It declined 60 points on Friday, falling below its 50-day moving average (red line) to close at 2,205. Similar to the S&P 500’s daily chart, it looks like the next resting stop for the tech-laden index might be from a support level from back in November and December.       
  The wild selling at the end of the week caused the VIX (CBOE VOLATILITY INDEX) to spike by 30%. It jumped 5.04 points on Friday to finish the week back above both its 50-day moving average (red line) and its 200-day moving average (black line) at 27.31 points. If this index keeps moving north, it could mean a lot more trouble for the Market.

Unfortunately, we’re back on political watch instead of watching fundamentals or technicals. We can even throw earnings out the window because who really cares about results or guidance in this type of trading environment. It almost feels like we’re back to a year and a half ago when one eye was on the Market and the other was on Congress. Let’s buckle our seat belts tightly and pick up a case of Dramamine at Sam’s Club because we’re probably going to need quite a bit of it if this type of news cycle continues. The last time we saw this dramatic a move in the VIX was late October (during the November option cycle) when we made most of our put spreads into iron condors. Of course, after a week of selling, the Market quickly reversed and caused us nothing but pain in our new call spreads, giving us our first losing month in a year. Although it feels different this time, we’re very cautious about making the same type of play this month. At this point in time, we’re considering another tactic of adding layers to some of our put spreads. We’ve done this numerous times in the past, especially in the RUT, with plenty of success. This gives us some extra premium and plenty of safety with new spreads at even lower strike prices. For tomorrow, let’s add two layers, one in the RUT and the other in the OEX. We’re going to cut down the number of contracts to 10, but this should help us add some nice premium without much risk. NEW TRADE ALERT (2) Please Note: These are Day Orders and Limit Orders. RUSSELL 2000 INDEX (RUT) OPENING 530-520 FEBRUARY BULL PUT SPREAD (10 contracts) Sell 10 February Puts at 530 strike price Buy 10 February Puts at 520 strike price Total Credit 0.40 per contract Potential Profit $400.00 Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $535.00. S&P 100 INDEX (OEX) OPENING 425-415 FEBRUARY BULL PUT SPREAD (10 contracts) Sell 10 February Puts at 425 strike price Buy 10 February Puts at 415 strike price Total Credit 0.40 per contract Potential Profit $400.00 Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $427.50.

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	170-165		15	0.40
RUT	Bull Put	560-550		15	0.40
OEX	Bull Put	480-470		15	0.45

POTENTIAL PROFIT

$1,875.00

PCLN 170-165 BULL PUT SPREAD (15 Contracts entered on 01/19/10) PCLN CLOSED AT $206.31 Today (36.31 points away from our put spread) Profit potential of $40.00 per contract Contingent Stop Order set at $172.50 The movement in Priceline last week was a little ironic. When the Market was strong early in the week, PCLN lagged behind. But when the indices were selling like there wasn’t any tomorrow, PCLN was able to hold its own. The stock was holding up extremely well on Friday until the last hour of trading when it wasn’t able to defy the massive selling across the board. The stock finished the session down $3.84 at $204.20. While we don’t like to see the red finish on Friday, we still like how we’re sitting in this spread with over 35 points separating the stock from our “short” strike price. But even with this said, we still need to monitor the situation very closelyover the next week because the volatility has ticked up dramatically.
RUT 560-550 BULL PUT SPREAD (15 Contracts entered on 01/20/10) RUT CLOSED AT $617.12 Today (57.12 points away from our put spread) Profit potential of $40.00 per contract Contingent Stop Order set at $565.00 On Wednesday night, it was quite remarkable just how large our cushion was in this put spread. But with two straight sessions of heavy selling, we’ve lost a big chunk of that. On Thursday, the small-cap index broke below its 20-day moving average (light blue line) and then continued heading south on Friday. On the final trading day of the week, the RUT shed 11.24 points to finish the week just above its 50-day moving average (red line) at $617.12. Although we still have a lot of breathing room in our put spread, we want to see the index hold above its 50-day moving average this week. This is the area we’ll be watching extremely closely.

OEX 480-470 BULL PUT SPREAD (15 Contracts entered on 01/20/10) OEX CLOSED AT $502.35 Today (22.35 points away from our put spread) Profit potential of $45.00 per contract Contingent Stop Order set at $482.50 We handled the selling on Wednesday without any concerns, but two more sessions of heavy selling have done some technical damage on the daily chart. The S&P 100 index tumbled through its 20-day moving average (light blue line) on Thursday and then sliced through its 50-day moving average (red line) on Friday. On Friday alone, it tumbled 11.78 points to finish the week at $502.35. While we’re still sitting with a 22 point cushion in our put spread, we certainly don’t like the massive selling momentum that we’ve seen over the past three days. Let’s see if we get some kind of bounce at the start of the new week.

As always, Trade Happy and Trade Smart

Trouble on the earnings front, combined with new anxiety in China, was too much for the Market to overcome today. Stocks tumbled to their worst loss of the year, but were able to rebound this afternoon and pare a good chunk of the losses. Until the rally this afternoon, there was a lot of gloom and doom floating around the Street. But the surge helped ease this anxiety.

 

It was the earnings from IBM that spooked traders early on. Although the company announced decent earnings in the fourth quarter, the stock took a beating. This appears to be the new trend of late; announce good earnings and then watch your stock get whacked. It was large-caps that seemed the weakest today, especially ones tied to global sales.

 

The news out of China, that caught everyone a little off-guard, was word that the government has ordered credit officials to cut back on currency lending. The Chinese appear to be tightening credit as a way to curtail the rapidly growing economy. Tightening credit will definitely help curtail economic growth, especially when combined with the increase in its key reserve requirements (which the country raised last week). While this will help combat inflation, the question is whether or not it will do more damage than good in the long run.

 

In economic data today, the housing market was front and center. According to numbers released by the Commerce Department, construction of new homes and multifamily properties dropped by 4% last month. Today's report of 557,000 (seasonally adjusted) new homes constructed in December was down from the annual pace of 580,000 that was reported one month prior. This shows a slowing trend in housing construction and might signal a shift back towards contraction in the coming months, especially if we see the credit conditions starting to tighten once again.

 

In the other big economic report today, the Labor Department announced a rise in wholesale prices. The data showed an increase of 0.2% in the Producer Price Index (PPI), but this is much lower than the rise of 1.8% reported in November. This news helps weaken any argument for near-term inflation and could help the Fed keep interest rates in check for the time being, especially since Core-PPI came in flat. The chart below shows that PPI has been rising over the past few months while Core-PPI has remained steady. Keep in mind that policymakers are more concerned with the Core-PPI because it strips out the volatile food and energy prices.

 

 

 

 

Graphic from Briefing.com

 

The new bit information out of China means lower oil consumption. This was the main driver behind the falling price of crude today. It shed $1.40 a barrel to finish the session at $77.62 a barrel on the New York Mercantile Exchange. Of course, traders will be keenly focused on tomorrow's Energy Information Administration's report on inventory levels. These numbers will likely be the driving force behind oil's move on Thursday.

 

Today's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 20	08:30	Building Permits	Dec	653K	580K	589K	584K
Jan 20	08:30	Housing Starts	Dec	557K	572K	580K	574K
Jan 20	08:30	Core PPI	Dec	0.0%	0.1%	0.5%

 

It was definitely one ugly morning for the Dow Jones Industrial Average. But a nice rise in the afternoon helped the large-cap index erase nearly half of its losses on the day. However, it still finished the session down 122 points at 10,603. It was good to see the Dow close back above its 20-day moving average (light blue line). Let's see if it can continue to close above this line as well as its support at 10,500 on the daily chart.

 

 

The S&P 500 also was trading below its 20-day moving average (light blue line) this morning before it was able to reverse and head higher. Despite closing back above this line, it still shed 12 points in today's action, closing at 1,138. On the daily chart, we want to see if it can hold above this level as well as the support at 1,130 points. If so, then our OEX put spread should be in great shape.  

 

 

The Nasdaq Composite took an absolute beating this morning. The index sliced right through its 20-day moving average (light blue line) on the daily chart and kept moving south. It wasn't until it hit the 2,270 point area that buyers came back into the index. The good news was that the Nasdaq was able to close well off this level when the bell rang. The bad news was that this still meant a 29 point loss on the day. This led the other major indices to the downside with its 1.26% decline, taking the tech-laden index to 2,291 points. Let's see if the Nasdaq put in its low for the week during today's session.  

   

 

All of the selling this morning meant that the VIX (CBOE VOLATILITY INDEX) was moving higher. Although it did close up 1.10 point at 18.68 points, this was well off its high of the session. It was the afternoon rally that took away most of its gains. Let's continue to watch this index closely because if it starts climbing, that means the bears are creeping back into the Market.

 

 

That's why we throw the spreads out there everyday....even when it looks like a long shot that our trades might get filled. After yesterday's big move to the upside, it appeared that keeping our spreads the same for Wednesday was going to be a futile effort. Of course, that was until the selling engulfed the Market for a majority of the session. The massive selling this morning played right into our hands and helped us get the fills. Then, as if planned perfectly, we got a round of buying late in the afternoon that helped everything move off the lows of the session.

 

Sitting here tonight, we feel really good about our entries in each of these spreads. We certainly would like to have at least five spreads working this cycle, but with a few already filled, we can now take our time on the rest of them. After today's wild ride, we want to sit back and see how the rest of the week unfolds before entering additional spreads. Let's save those maintenance dollars in case we want to add layers to our current spreads or come back with positions in new stocks/indexes. For now, let's go ahead and take a look at how we're sitting heading into the rest of the week.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	170-165		15	0.40
RUT	Bull Put	560-550		15	0.40
OEX	Bull Put	480-470		15	0.45

POTENTIAL PROFIT

$1,875.00

 

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

PCLN CLOSED AT $206.31 Today (36.31 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $172.50

PCLN is probably our one position that has shown us quite a bit of weakness this week. We were hoping that it would be able to work its way back above its 50-day moving average (red line) on the chart. However, it has really struggled to do so just yet. Instead, it has given us some very large intraday swings, but we used that to our advantage on our entries. Because we have gone so far out of the money in this one, we shouldn't have to be very concerned about wild sessions like today's action. Instead, let's sit back and see if it can regain its upward momentum later in the week.

 

 

 

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

RUT CLOSED AT $639.61 Today (79.61 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $565.00

The small-cap index wasn't able to avoid all of the pain this morning. Just like the rest of the Market, it was also hit with plenty of selling. The good news was that it was able to take a nice U-turn once it hit some good support on the chart. It finished the session down 9.54 points at $639.61. Despite this loss, we're still sitting with a mammoth cushion in this spread and tons of great support levels on our side. If we get any more selling in this one, we're likely to just come back with another put spread at an even lower level next week.

 

 

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

OEX CLOSED AT $524.73 Today (44.73 points away from our put spread)

Profit potential of $45.00 per contract

Contingent Stop Order set at $482.50

Similar to the major indices, the OEX fell below its 20-day moving average (light blue line) this morning, but then was able to find some afternoon strength. The index rallied back above this level, leaving a big chunk of its losses by the wayside. The index finished the session down only 5.48 points. This leaves us very comfortable in this spread for now.  

 

 

As always, Trade Happy and Trade Smart

The Market skids into expiration on Friday. The red on the final trading day of the week caused the indices to encounter their worst weekly performance of the New Year. It was the financials that struggled on Friday, helping to lead the way lower.

 

Troubles in the financial sector on Friday stemmed from the troubles in J.P. Morgan Chase's quarterly earnings. Also on the day, chip maker Intel left the Street disappointed and provided plenty of reasons for the traders to hit the "sell" button. It appears that the extremely low expectations that investors had for most of 2009 is finally wearing off. We'll have to see if this continues to be a drag on earnings in the upcoming week when things really start to kick into high gear.  

 

The session had several economic reports released on the day with the Consumer Price Index probably being the most closely watched. While there was a sizable jump in food prices, there weren't any real surprises on Friday. The index measures the price of goods and services that are purchased by consumers. According to the Department of Labor, the CPI index actually dropped last month with its reading of 0.1%. This was lower than its previous reading of 0.4% last month and was slightly better than what the Street was expecting.

 

At the same time, core CPI (which excludes volatile food and energy prices) also increased modestly last month. Its reading of 0.1% was as expected and helps the index remain in more of a sideways pattern on the chart. While everyone expected both of these indexes to rise substantially in the future, they both appear to be holding in check for the time being.

 

Graphic from Briefing.com

 

In other economic news, the University of Michigan Consumer Sentiment Index came in below expectations on Friday. Ahead of the release, the Street was bracing for a jump to 74.0 in the index. But the actual number came in at only 72.8 for its initial reading in January. This was up just slightly from December's final number of 72.5. While this index rarely translates into actual consumer spending, there's no doubt that the bulls would prefer to see a much higher number, which would mean greater confidence in the economy. The chart below shows the readings have turned to more of a sideways pattern on the chart instead of a rising trend.

 

Graphic from Briefing.com

 

While the equities market was closed on Monday, crude still traded. Although it was certainly a quiet session, oil was still able to rise $0.49 on the day to finish the session at $78.49 a barrel on the New York Mercantile Exchange.

Friday's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 15	08:30	Core CPI	Dec	0.1%	0.1%	0.0%
Jan 15	08:30	CPI	Dec	0.1%	0.2%	0.4%
Jan 15	08:30	Empire Manufacturing Survey	Jan	15.92	12.00	4.50	2.55
Jan 15	09:15	Capacity Utilization	Dec	72.0%	71.8%	71.5%	71.3%
Jan 15	09:15	Industrial Production	Dec	0.6%	0.6%	0.6%	0.8%
Jan 15	09:55	Michigan Sentiment	Jan	72.8	74.0	72.5

 

The Dow Jones Industrial Average suffered its biggest decline of the year on Friday when it tumbled 100 points. The 0.9% loss took the large-cap index off its 15-month high that it hit on Thursday to finish the week at 10,609 points. The index was down much more on Friday before it seemed to find support on the chart and then bounce off an old support area. Let's see if it's able to stabilize this week when the earnings season kicks into high gear.   

 

 

The S&P 500 also pulled back from its new 52-week closing high that it reached on Thursday. It tumbled 12 points to finish the week at 1,136 points. The S&P 500 also pulled back to an old support level on Friday before it was able to find some buying come back into the Market. We'll be watching this week to see if it continues to find support from this same level and its rising 20-day moving average (light blue line). These two seem to be sitting in the same area on the daily chart.

 

 

The Nasdaq Composite also took a beating in Friday's session when it shed 28 points on the final trading day of the week. The tech-heavy index pulled back to its 20-day moving average (light blue line), but wasn't able to get much of a bounce off this line. This has us a little concerned for Tuesday. Just like the other major indices, we want to see if the Nasdaq is able to hold above this moving average, as well as, its next support level on the daily chart.  

   

 

The VIX (CBOE VOLATILITY INDEX) found some strength on Friday, but wasn't able to hold onto most of its gains by the time the closing bell rang. It was able to move up only 0.28 of a point to finish the trading week well below the 20-point barrier at a level of 17.91 points. As long as it stays below the 20-point area, we aren't all that concerned about the selling. Now if it crosses that level, we're going to be a little more interested in a trend change coming.

 

 

 

Well, it looked as if the rest of our traders that were in Google were going to make it to the finish line with the spread intact. That was until the bloodletting on Friday that caused the stops to get dinged. These traders took an average loss of $0.74 per contract. While it was unfortunate to take any loss, this should have allowed these traders to still make a profit on the month. We just wish all of us could have fit into that category.

 

As we said on Wednesday's newsletter, unfortunately the craziness of that stock last week caused some of us to take some unusually large losses due to wild volatility on the open when some of our stop got hit. Not only that, but the wild price swings also caused our auto traders to get filled at all sorts of different prices. As we always do, we're using the average close-out prices from the brokers to fill in our month-ending tallies. Those wild swings meant that some traders will have walked away with a profit last month but others will take on an even bigger loss than we are showing.

 

Keep in mind this is such an unusual month, one that we've never quite seen before, where the close-out debits are so wildly varied. Usually, these prices only vary slightly. Of course, nothing about last month was very typical as far as Google was concerned.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35	3.37

JANUARY LOSS

$2,805.00

 

PCLN 200-190 BULL PUT SPREAD

Profit of $35.00 per contract

RUT 580-570 BULL PUT SPREAD

Profit of $40.00 per contract

OEX 490-480 BULL PUT SPREAD

Profit of $35.00 per contract

GOOG 580-570 BULL PUT SPREAD

Original credit of $35.00 per contract

Close-out debit of $337.00 per contract

Total loss of $302.00

As we said last week, the crazy headlines concerning the problems in China and the drastic drop in the stock overnight is something that rarely happens. Unfortunately for us, it happened at a time that we were sitting with only a 10 point cushion. If you've been with us during the past year, you know that we've traded this stock quite often during our streak of profitable months with ease. It seemed like every month we had nearly a 40 to 50 point cushion in that stock without any worries, month after month. Obviously, that wasn't the case last month.

 

But enough about reliving the pain and suffering from January. It's time to start focusing on how we get that money back and get a new 12 month winning streak going. We're going to go back to our bread and butter with a couple of index spreads. With these spreads, we don't have to worry about one stock's specific news causing a huge overnight drop like we did last month.

 

But even with this in mind, we still have to be a little concerned about the red we saw at the end of last week. We also have plenty of concerns heading into the heart of the new earnings season during this holiday-shortened week. So let's be conservative in our put spreads and place our strike prices well out of the money this month.

 

We're going back to our bread and butter spreads, the RUT and OEX to get things started. We can't remember the last time we ran into any trouble in these spreads from the put side. At the same time, we're able to come in with strike prices that are below several strong support levels on the chart, which should help us in the event that there's any continued selling during the February cycle.

 

We're also coming back with another put spread in Priceline.com Incorporated (PCLN). Although the stock has rolled over on the chart and fallen through its 50-day moving average (red line), this has increased the premiums in the put spreads. We doubt that all of the selling is done in this stock, but we believe that with our strike prices being nearly 40 points out of the money, it is more than enough to get us to another profit in this one. Let's place the trade for tomorrow and see if we get a little selling to help us get filled.

 

NEW TRADE ALERT (3)

 

Please Note: These are Day Orders and Limit Orders.

 

RUSSELL 2000 INDEX (RUT)

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

Sell 15 February Puts at 560 strike price

Buy 15 February Puts at 550 strike price

Total Credit 0.40 per contract

Potential Profit $600.00

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $565.00.

 

S&P 100 INDEX (OEX)

OPENING 480-470 FEBRUARY BULL PUT SPREAD (15 contracts)

Sell 15 February Puts at 480 strike price

Buy 15 February Puts at 470 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 $482.50.

 

Priceline.com Incorporated (PCLN)

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

Sell 15 February Puts at 170 strike price

Buy 15 February Puts at 165 strike price

Total Credit 0.4 per contract

Potential Profit $600

 

Once Filled, Use a Conditional Order: Use a Stop or Buy Market if Touched Order if stock reaches $172.50.

 

RUT DAILY CHART

OEX DAILY CHART

 

 

PCLN DAILY CHART

As always, Trade Happy and Trade Smart

The Weekend Update will be released tomorrow evening due to the Market being closed on Monday. We delay the release just in case there are any unexpected events that might take place on Monday. Until then, enjoy the day off and we'll have the new spreads released tomorrow night.

Fallout from Google's threat to walk away from China caused us severe pain this morning. The news caused the stock to tumble this morning pre-market, slicing right through our put spread.

 

In the company's statement, Google claimed that it had discovered massive cyber attacks against itself that had originated from China. Evidently, these attacks were serious enough to cause the company to threaten leaving all operations in China and also removing its censoring of Chinese search sites. According to the company, these attacks took place in December. With such a time lag between then and the company's announcement, we wonder if the recent weakness in the stock previously was caused by word of this release leaking out.

 

While we cringed at the thought of exiting a spread on such a gap lower and on news like this, we knew it was the prudent thing to do. Normally, news like this is short-lived, at least initially. However, with China involved and so many variables, it's just too hard to say how things will unfold. With such uneasiness surrounding the situation, we felt it was best to stick with our trading plan and let our stops get triggered. However, for some auto traders, the brokers weren't able to get the orders filled because of the morning volatility. For those auto traders, they are still in the current spread with the same contingency order set for the rest of the January cycle. It's just a shame that everyone was not still in the spread.

 

Today's wicked drop in Google was one of those things that happens only once in a great while. Usually we have such large cushions built up that a 15 to 20 point drop wouldn't crush our spread like it did today. Fortunately, events like this are fairly few and far between. But this doesn't remove the pain from taking such a beating on the exit fills today. The worst thing that could happen was for a stock to open between our two strike prices and that's exactly what happened this morning. This caused us to get hit with such a bid fill on the debit (to close out the position), only to watch the stock finish the day back well above both of our strike prices. We'll talk about this again when we take a look at the fills.

 

Miraculously, the news from Google didn't keep the Market down today. Instead, healthcare and financial names helped lead the indices higher. Traders were closely monitoring testimony from the financial CEOs who were testifying on Capitol Hill in front of a federal commission investigating the financial crisis. While it made for some good television, there wasn't anything new coming out of the hearings other than the CEOs taking heat for their part of the meltdown. As usual, it was a lot of theatre for the public but extremely far from any type of solution except more regulations.

 

Crude traded lower today after the U.S. Energy Information Administration announced a jump in supplies last week. The government data reversed a five-week trend of falling inventories and instead showed a jump of 3.7 million barrels last week. This was much higher than expected and caused oil to finish the session down $1.14 a barrel at $79.65 a barrel on the New York Mercantile Exchange. At the same time, gasoline inventory levels rose 3.8 million barrels last week. This was also substantially higher than expectations and should cause a drop at the pump in the near future.

 

Today's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 13	10:30	Crude Inventories	1/08	3.70M	NA	1.33M
Jan 13	14:00	Treasury Budget	Dec	-$91.9B	-$92.0B	-$120.3B
Jan 13	14:00	Fed's Beige Book

 

The Dow Jones Industrial Average was able to finish the day up 53 points at 10,680. Despite dropping back below the 10,600 point level during yesterday's session, it has been able to close above this support line every day this week. We'd expect this trend to continue as long as we don't get bombarded with bad earnings reports.    

 

 

The S&P 500 also cruised to a nice gain after overcoming the weakness early in the day. It finished on Wednesday up 9.93 points at 1,146. It has been able to hold above the new support level at 1,130 points on the daily chart and is once again pushing towards a new 52-week high. Let's see if it takes out the high from Monday during the next two trading days.   

 

 

The troubles with Google in China seemed to be a distant memory for the Nasdaq Composite this afternoon. The tech-laden index overcame its early morning troubles and found itself up 25 points by the time the closing bell rang. This rally wiped away all of yesterday's losses after reversing at its 20-day moving average (light blue line) on the chart. Let's see if it continues to rise from today's closing price of 2,307 points.

   

 

After yesterday's huge rise in the VIX (CBOE VOLATILITY INDEX), it looked like it was going to be more of the same this morning. However, that didn't hold true. The rally in the Market caused the "fear" index to dive this afternoon. The VIX finished the day off 0.34 of a point at 17.90.

 

 

How much pain could China cause us? Way too much! We got the dreaded close-out with the stock sitting between our strike prices and our fills. While we believe we can make our way out of the hole in a month or two, it's definitely not the way we wanted to start 2010.....that's for sure. For those auto traders still in the position or any other traders that did not exit the trade today, there's still a chance you might be able to make it to the finish line in this one.

 

Looking back at the daily chart, perhaps there was some insider trading or something leaking somewhere (about this announcement) that caused the stock to take a dive late last week and early this week. The reason it didn't spook us is that we've lived through moves like that time and time again without something like this taking place. But who would have thought something like China was on the horizon. Obviously, somebody must have known something ahead of time. But that doesn't really help us now.

 

Last night, we still had a ten point cushion that wasn't concerning us too much with the stock sitting above its 50-day moving average. But news like this morning is just impossible to plan for. When the story showed up on the front page of The Wall Street Journal this morning, we knew it was going to be a bad day. While we could talk about this one for another ten pages or so, let's go ahead take a look at the other spreads we have still working for us; as well as take a look at the Google spread for those members still in them. In the weekend newsletter, we should have all the final tallies from all the brokers.  

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35

 

PCLN 200-190 BULL PUT SPREAD (15 Contracts entered on 12/29/09)

PCLN CLOSED AT $214.30 Today (14.30 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $202.50

Priceline took a nose-dive this morning just like the rest of the tech names. But after the initial plummet, it was able to bounce back nicely the rest of the trading day. It finished the session with a small gain of $0.32 with its closing price of $214.30. The stock was able to make it back above its 50-day moving average (red line) and should be able to make it to the finish line with our strikes intact. Of course, that's unless it decides to not do any business in China tomorrow morning......then all bets are off.  

 

 

RUT 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

RUT CLOSED AT $643.56 Today (63.56 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $585.00

Our RUT spread turned out solid again this month. The index tested a support level this morning but then reversed and headed higher. It finished the day up $8.06 at $643.56. This gives us plenty of breathing room in this position with time running out. Another month and another profitable RUT put spread.

 

 

 

OEX 490-480 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

OEX CLOSED AT $527.93 Today (37.93 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $492.50

The OEX also traded in a wide range today, but we like the ending result. The index rose 3.64 points and increased the cushion in our put spread. With time running out in this one, it looks like it's going to be another uneventful expiration for this position.   

 

 

GOOG 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09 & closed on 01/13/10)

GOOG CLOSED AT $587.09 Today (7.09 points away from our put spread)

Original credit of $35.00 per contract

Contingent Stop Order set at $482.50

Google gave us a big old case of heartburn this morning when we saw the futures tank. While we knew it was going to be ugly based on how the stock traded after hours yesterday, we thought it had made a little recovery when it stopped trading last night. That was all for none this morning with the stock taking a bath right from the beginning. For those traders still in the position, let's keep the stop set at the same place but see if that 7 points of breathing room can get us to the finish line. For the rest of us, let's lick our wounds and then start getting that money back next month.   

 

 

As always, Trade Happy and Trade Smart

Despite a troublesome jobs report on Friday, stocks rally late in the day. The highly anticipated non-farm payrolls couldn't keep the Market down last week. While the subpar report dampened hopes of a stronger recovery, the bulls showed up late in the trading day on Friday, helping the major indices to finish the week in positive territory.

 

The move higher on the final trading day of the week was a little in doubt after the disappointing non-farm payrolls were released. Ahead of the release, the Street was looking for a flat reading for December. But unlike expectations, the actual report showed a loss of 85,000 jobs last month.

 

The only bit of good news in the release was that November's job loss had a positive revision. The government revised its previous report to show an actual gain of 4,000 jobs in November. This was the first report of jobs being added to the economy and was certainly better than the loss of 11,000 jobs that was originally reported. However, the chart below shows the turnaround last month with jobs once again being removed from the economy in December.

 

Graphic from Briefing.com

 

The revision in the previous month's job report probably helped keep the unemployment rate from rising last month. As expected, the nation's unemployment rate held steady at 10.0% in Friday's release. While this was better than an increase in the rate, keep in mind that it still stands near a 26-year high.

 

Graphic from Briefing.com

 

It was a flat session for the price of crude on Friday. It settled up a mere $0.09 a barrel higher at $82.75 a barrel on the New York Mercantile Exchange. While crude struggled, gold moved higher. Thoughts of interest rate hikes in the future helped the shiny metal to rise $5.10 an ounce to finish the week at $1,138.20 a troy ounce. Of course, it was also helped by the weakness in the dollar.

Friday's Economic Reports

Date	ET	Release	For	Actual	Consensus	Prior	Revised From
Jan 08	08:30	Average Workweek	Dec	33.2	33.2	33.2	--
Jan 08	08:30	Hourly Earnings	Dec	0.2%	0.2%	0.1%	--
Jan 08	08:30	Nonfarm Payrolls	Dec	-85K	0K	4K	-11K
Jan 08	08:30	Unemployment Rate	Dec	10.0%	10.0%	10.0%	--
Jan 08	10:00	Wholesale Inventories	Nov	1.5%	-0.3%	0.6%	0.3%
Jan 08	15:00	Consumer Credit	Nov	-$17.5B	-$5.0B	-$4.2B	-$3.5B

 

Friday's late-day rally in the Dow Jones Industrial Average helped the large-cap index secure a winning week. For the first five trading days in 2010, the Dow is up 190 points. The strong start helped put the index up 1.82% for the New Year while breaking through another decent resistance level on the daily chart at 10,600. Friday's advance of 11 points helped the Dow finish the trading week at 10,618 points. Let's see if it can continue moving north next week.   

 

 

The S&P 500 fared even better than the Dow last week when it climbed nearly 30 points over the first five trading days of 2010. Friday, it rose 3 points to finish the week at 1,144 points while marking its best weekly performance in two months. This also puts the S&P 500 up 2.68% for 2010, now that's not a bad start to the New Year. On the daily chart, it also broke right through the old barrier at 1,140 and just kept moving north. Let's see if this continues as we enter the new week.  

 

 

The Nasdaq Composite struggled for the last few trading days, but turned that around on Friday when it surged 17 points. This helped the tech-laden index finish the week up 2.12% while sitting above a resistance level with its closing price of 2,317. Let's see if it's able to hold onto this momentum as we start the new trading week.   

   

 

Friday was another significant session for the VIX (CBOE VOLATILITY INDEX). The "fear index" fell to another significant low on Friday when it tumbled 0.93 of a point to finish the week just above a 52-week low at 18.13 points. Another session like Friday's and the VIX could slice right through the 18 point level.

 

 

We had one spread giving us a lot of concern last week, but even this one was able to turn things around Friday afternoon. Google had a rough stretch last week but the rally on Friday afternoon now leaves us in pretty good shape heading into the final trading week of the January option cycle. As long as we can keep tech from another sharp sell-off this week, we should be able to coast to a nice profit for the first cycle of 2010.

 

However, this week does mark the beginning of the earnings season, which could provide a bumpy path to the finish line for us. The good news is that our index spreads are sitting so far out of the money that we shouldn't have any concerns in those positions. Let's keep a close eye on tech because that's the only real concern for us this week. With that said, let's take a look at how we're sitting in each position heading down the home stretch.

 

STOCK	TYPE		STRIKES	CONTRACTS	CREDIT	CLOSE/DEBIT
PCLN	Bull Put	200-190		15	0.35
RUT	Bull Put	580-570		15	0.40
OEX	Bull Put	490-480		15	0.40
GOOG	Bull Put	580-570		15	0.35

CURRENT PROFIT POTENTIAL

$2,250.00

 

PCLN 200-190 BULL PUT SPREAD (15 Contracts entered on 12/29/09)

PCLN CLOSED AT $216.21 Today (16.21 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $202.50

Priceline made a nice move to the upside on Friday around the noon hour, but then couldn't hold onto a majority of its gains by the time the closing bell rolled around. Unlike most stocks that surged late in the day, PCLN was only able to cling to a $0.08 gain at the close, leaving the stock 16 points above our "short" strike price at $216.21. On the daily chart, PCLN has found some support from a low in the middle of December. As long as this level continues to provide support this week, we should be in good shape. We also like the fact that its 50-day moving average (red line) continues to rise on the chart. This line should also be some nice support for the stock in case there's more selling. We like how we're sitting in this one.  

 

 

 

RUT 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

RUT CLOSED AT $644.56 Today (64.56 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $585.00

We really couldn't ask to be sitting much better in this spread heading into the final week of trading. The small-cap index continued to break through old resistance levels on the daily chart, helping to extend the cushion in our put spread. With us now holding nearly 65 points of breathing room in this spread, we shouldn't have anything to worry about this week.

 

 

 

OEX 490-480 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

OEX CLOSED AT $527.76 Today (37.76 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $492.50

The OEX also continued to march higher on Friday, making us even more comfortable in this position. The index advanced 1.42 points on the final trading day of the week, leaving the OEX at $527.76. With time running low, we should be able to coast to the finish line in this one with ease. We don't see anything to concern ourselves with in this position.  

 

 

GOOG 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

GOOG CLOSED AT $602.02 Today (22.02 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $582.50

Google was the one position causing us to take notice last week when it started to tumble on Wednesday and continued to sell-off through the beginning of Friday's session. However, it rallied nicely about a half hour into the trading day on Friday and then kept moving higher. It finished the day up $7.92 at $602.02. With the company set to release earnings in 11 days, we don't see this one falling much farther. We'll continue to monitor this one closely this week, but we really don't mind where we're sitting in this one for the time being. But even with this said, make sure your contingency stops are set just in case something unforeseeable happens. It's always better to be safe than sorry. 

 

 

As always, Trade Happy and Trade Smart