UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!

The volatility of this past week did our current positions a world of good..

UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!

PLUS MATTEL (MAT) SPIKED HIGHER RIGHT AS WE ENTERED OUR SELL ORDERS FOR A GENEROUS SIXTY-SEVEN PERCENT WINNER!

AND OUR OPEN PLAY ON RESEARCH IN MOTION (RIMM) IS SHOWING A NICE THIRTY-FIVE PERCENT OPEN PROFIT AFTER FRIDAY'S EXPIRATION!

It was a good week and by the looks of things it's going to get better. Our sold December options on RIMM expired worthless Friday exactly as we hoped--and now we own both the January puts and calls for a fraction of their current worth.

Now as the markets wind down toward Christmas are there still opportunities? You bet there are--and we can start by taking a good look at...

WHICH WAY THIS MARKET IS HEADED

The SP-500 traded mostly sideways this past week but with a slight upward bias. The volatility seems to have left this market as the index only varied by about 6 points--extremely unusual for a quadruple witching Friday. The VIX is less than a dollar from its yearly low closing Friday at 16.11.

The Nasdaq spiked to a new intraday high not seen since the end of 2007. This index looks bullish as well but at these lofty levels we could easily see a correction in January.

The markets typically trade higher right through the new year and then swoon going into February--something to keep in mind with new bullish positions as the markets edge higher.

There are reasons the markets are edging higher and we've seen some of them this past week. The Conference Board index of leading economic indicators rose by a very sharp +1.1 points for November. That was the biggest gain since March. Nine of the survey's ten components increased (real estate being the obvious exception).

The internal components point to a 3.0% rate of GDP growth in Q4. The odds of a double dip recession are decreasing every time a new positive economic report is released.

Hiring is improving at least on a temporary basis and it is expected to accelerate in the spring of 2011. Jobless Claims declined only slightly last week but it was enough to push the four-week moving average to 423,000---the lowest level in two years.

The headline number on the Philly Fed Manufacturing Survey for December rose to 24.3 from 22.5 in November. That may not sound like a big gain but the consensus estimates were for a decline to 15.0. Compared to an expected drop it was a great number---the highest level for the index since 2005.

The tax deal signed on Friday is also bullish as it should improve employment fairly quickly because of the accelerated write offs for business. The passing of this bill should remove one more reason for worry from the markets with a tax freeze for the next two years and some additional benefits for employers.

For next week the only material report will be the final GDP revision for Q3 on Wednesday---estimates are for a small rise to +2.6% growth.

The positives for this market are improving economics and a new flood of money still trying to find a home in every asset available (with the obvious exception of real estate). Stocks are not the only assets rising--copper, gold, silver, food and oil prices are all hovering at multi-year highs. The uptrend in almost every asset class within a still tepid economy relates more this new flood of dollars and their declining buying power than increased demand.

Unfortunately all the money printing and new debt is going to put a lid on the stock market at some point. As interest rates rise money will flow from stocks to bonds. And interest rates have been rising--and in spite of the Fed trying to keep rates low they will continue to rise.

Two-year Treasury yields have doubled in 29 trading days. Five-year yields have surged 102 basis points, or 1.02 percentage points, while 10-year yields just hit a seven-month high. What's more, thirty-year municipal bond yields soared to a 16-month high, and thirty-year mortgage rates jumped to the highest since the tail end of the spring home buying season.

Plus inflation is rising in spite of what the official government reports say. Since the first of this month the price of corn is up more than 3 percent, coffee is up more than 8 percent, sugar is up 8.49 percent, oats are up nearly 6 percent, while cotton prices are up more than 16 percent--in less than a month. It's hard to imagine what they'll be in a year.

The problem is these trends are not going to reverse--the fundamental facts tell us they are going to accelerate. So we've got a stock market trending higher with debt, inflation and interest rates massing to kill the rally--the question is...

HOW DO WE MAKE MONEY ON IT?

The key in an uncertain market like this one is to set yourself up to profit no matter which way stocks go. With volatility hovering toward its lows for the year we can get in on 'both ways' trades for less than ever giving us a very low profit threshold.

Our first play is a 'both ways' position on a big box retailer that just formed a horizontal wedge patter famous for predicting a big move--one way or the other. We'll be setting ourselves up to profit on that move first thing Monday!

Our next play is also a 'both ways' trade on a company with great growth and earnings in the past--and an earnings event coming up in the near future. Whether or not traders like their earning is immaterial because we'll be set up to profit in both directions on some very cheap options!

We've got two great play set-ups on a market ready to rock--so let's get going...

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