TRANSOCEAN (RIG) TOUCHED ITS PROFIT TRIGGER TUESDAY AND REVERSED BLASTING US OUT OF OUR OCT 60 CALLS AT A PROFIT!

This past week the big Himalayan adventure was canceled which was a surprise---but it's good to be back with you watching the markets---especially as stocks continue their steady climb higher...

TRANSOCEAN (RIG) TOUCHED ITS PROFIT TRIGGER TUESDAY AND REVERSED BLASTING US OUT OF OUR OCT 60 CALLS AT A PROFIT!

That was the good news--the bad news is the last of our bearish trades--the EUO and DELL--were finally stopped out as the markets continued higher. So all we have left is our strangle on BAC and our two new high-odds spread trades from last week. In other words what hasn't been working has been cleared off the decks and we now have a much more promising portfolio to start this week.

The big question now is--will the markets continue to climb or are we in for a bearish reversal? To help answer that question let's take a good look at...

WHICH WAY THIS MARKET IS HEADED

The markets really shot higher on Friday extending an incredible month of gains. So far this month the Dow is up an incredible +843 points from the August 31 close logging an 8.4% gain--performance that would be good for an entire year. The SP-500 is up an amazing +9.4% and the Nasdaq launched an even more incredible +12.6%. If this trend holds this could be the biggest bullish move in September since 1939 according to Reuters--quite the contrary action for a month that is typically the most bearish of the year.

Friday's spike higher was impressive but it was NOT investors suddenly deciding to buy stocks--it was another huge short-covering rally. After the market decline on Wednesday and Thursday--with Thursday ending on the lows for the week---the shorts were loaded up again with expectations of a big plunge after such a steep climb. However two 'less bad' economic reports before the open panicked the short sellers into instantly buying back their positions launching the markets straight up.

The S&P gained +22 points in the first 45 minutes as shorts covered in panic--but for the next five hours it gained only two additional points. In a real rally the markets rise all day--in a short squeeze they rise at the open, move sideways all day and then see an "I give up" spike higher at the close as those shorts hoping for a reprieve are forced to cover before the close.

Be that as it may the charts are still showing some very bullish price action that will likely be continued at least for a little while longer. We've got earnings starting the first full week of October and there is usually some bullish excitement going into earnings season--especially with year over year expectations as high as they are.

The problem is that after the most bullish September in the last seven decades fund managers have a lot of profits on the table that are at risk in any downturn. Add in the fact that October 31st is fiscal year-end for the vast majority of mutual funds and managers have a strong incentive to lock in gains.

Any portfolio adjustments for year-end statements and taxable events have to be finished in October. Hundreds of stocks have risen more than 100% since the 2009 lows so any fund managers eye-balling a bonus may be itching to lock in those profits. If they do it early in October they can use that cash to buy the normal October dip in preparation for what should be a much better 2011.

The markets have risen on economic news that is lukewarm at best which is an indication of just how much money is sloshing around right now trying to find a home. Bond yields are hovering toward all-time lows so money is trying to find better returns in the stock market. ANY news that is perceived as being 'less bad' is being bought on the spot--and negative news is generally ignored in a classic display of bullish sentiment.

For example the existing home sales report on Thursday surprised investors with a moderate jump to a rate of 4.13 million homes compared to the 3.83 million pace in July. The increase in sales was small but broad based while months of available inventory fell from 12.5 to 11.6.

Then on Friday was another "less bad" report from the housing sector sparking this latest round of short-covering. Sales of new homes came in at 288,000---near a record low but still better than the 276,000 rate from July. Analysts were expecting another decline in sales and the uptick, despite it being tiny, was a positive surprise. The number of new homes on the market declined but the average price slipped another -1%. These are far from great numbers but they are slowly heading in the right direction and investors bought the news.

Another less bad report was the Durable Goods numbers for August. The headline was a negative -1.3% for the biggest drop in over a year but the internal components showed signs of improvement. Core capital goods rebounded +4.1% in August after a -5.3% decline in July. Capital goods orders are up +18% over the same period in 2009 and +30% since the recession lows. The increase in core orders prompted some analysts to start talking about a possible +2% GDP for the quarter.

What the market really liked though was the FOMC statement that the Fed is going to take 'further action' if the economy does not improve soon. That means more quantitative easing (massive dollar printing) and continuing low interest rates. Unfortunately all this dollar dilution in an effort to jump start the economy is already showing up as weakness in the dollar against other currencies, and higher hard commodity costs.

The dollar index has fallen almost 5% since the end of August and there appears to be no end in sight. Friday's close at 79.39 was already a seven-month low but the dollar is likely to keep on falling. The drop is based on worries the U.S. economy is not improving and the Fed is likely to launch another trillion dollar money flooding program that will further devalue the currency. This makes commodities like gold and oil rise in price because it takes more dollars to buy the same amount of product.

There may not be any official inflation but if you look at real tangible commodities inflation is taking off like a rocket--which is tough on the manufacturers especially if they can't pass those costs on in their finished products. Copper, lumber, wheat, corn, and metals are all soaring. The reason both has to do with the fall in the value of the dollar, and the rest of the world still seeing rapid growth and the demand that goes with it. Just because the U.S. and Europe are stagnant doesn't mean the rest of the world is contracting as well--the growth in Asia and South America is still impressive--especially compared to the developed economies.

So we've got a rising market, positive anticipation coming into earnings season, a falling dollar, slightly improving economic reports and a possible institutional sell-off in October--the question is...

HOW DO WE MAKE MONEY ON IT?

The trick in this market is to take advantage of the current trend--which is up--and make our profits fast to avoid any potential reversal in October. We've got two straight options plays that look absolutely perfect--they both have extremely low-cost options and need to move very little to lock in some outstanding profits.

The first is a commodity play---this one bottomed recently and is now heading higher--and with options this cheap it won't take much to make a bundle on the right calls--a move we'll be jumping on first thing Monday.

Our second play looks equally attractive--it's a high tech stock in a sector that is gaining a lot of traction. The stock has super cheap options and it's heading higher--and once again it won't take much to knock down a small fortune on the right calls.

This market wants to move higher and we're going to take advantage of it with two well-positioned plays for immediate profits--so let's get to it...

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