Market - Over the weekend, China released its PMI and it poked back above 50. That was better than expected, but it is far from robust. Europe's PMI declined for a fifth straight month and it came in at a dismal 46.9. The focus has been on China and stocks pushed higher on the news. This will be a very busy week for economic releases in the US. ISM manufacturing rose to 53.9 and that was slightly better than expected. On Thursday, ADP employment, ISM services and initial claims will be released. The biggest release of all will be the Unemployment Report on Friday. During the last month, initial jobless claims have been declining and that bodes well for Friday's number. Consensus estimates are for 150,000 new jobs. Thursday and Friday, Germany and France will hold bond auctions. Both countries are relatively stable and the auctions should go well. There isn't much to stand in the way of today's rally. A small dose of good news has stocks rallying to a major resistance level. Next week, earnings season will kick off. The big releases are still two weeks away. For 10 consecutive quarters, stocks have rallied ahead of earnings season. We will see if that pattern holds. Asset Managers did not buy stocks into year-end and that could be a sign that they are selling into strength. This has been a very tough market to trade. Once again, we have a massive overnight gap and now the market is flat lining after an hour of trading. One bad news item it will reverse the other way. We need to have directional movement that is sustained. Spain and Italy will hold bond auctions next week and that could be a "fly in the ointment". The ticking time bomb is Standard & Poor's European credit review. They have not set a timeline, but they did say that they would release the review as soon as possible. Trading volumes should return to normal this week and I would not be surprised to see the release after the close on Friday. Fitch will probably release its review later in the month. Stocks looked extremely strong this morning and they broke out above minor resistance. In today's chart you can also see that a cup and handle pattern has formed. That is also a bullish sign The news out of China was not good enough to justify today's rally. Many traders were speculating that China would lower bank reserve requirements this weekend and they did not. Conditions in Europe are tenuous and Eurocrats have not scheduled another summit. The process of forging new fiscal policies for the entire EU is enormous and the market will grow impatient. The unlimited 3-year credit line provided by the ECB was a band-aid and it will not solve the problem. I believe we were on the brink of a financial crisis in Europe in November and we barely avoided it. Banks are gobbling up the cash and they have run out of collateral to post. The bond auctions in Spain and Italy next week could be problematic. European banks are not going to purchase sovereign debt and fall into the same trap twice. Last year, China's market was down 25% and European markets were down 15%. A flat year for the S&P 500 might not feel that great, but our market outperformed other major markets. Every day that Europe avoids a financial crisis, the market wants to rally. As soon as one bad news event is released, the rug gets pulled out from under us. Asset Managers would normally be buying into this rally with both hands. I believe they will be cautious because they know the conditions in Europe are tenuous and rating agencies are about to release their reports. China's economy has been slowing down and earnings guidance was been relatively weak in December. I believe there are too many unresolved issues and Asset Managers will sell into strength. We have our hedge in place and we can add a bullish position on a stock that has been beaten down. We will also buy gold if it continues to bounce.

Bullish	GLD
Stock Option Trading Strategy Buy calls
Stock Option Trade Buy 5 GLD Feb $155 calls (GLD12B155.00) @ $6.30 - Day. filled 1/5/12
Stock Option Target Sell 5 GLD Feb $155 calls @ $6.50 - Day. Filled 1/25/12
Stock Option Stop None
Stock Description The investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets.
Option Trade Rationale The gold trade got very crowded last year and speculators have been flushed out in recent weeks. I still believe the fundamentals are intact. China and Korea are adding to gold reserves. Chinese investors love the security of gold and they will support the metal after a 25% decline in the Shanghai index last year. An emerging middle class will also buy more jewelry. The Fed has granted an unlimited credit line to the ECB. The ECB has granted an unlimited 3-year credit line to Euro banks. Euro banks are lending money to PIIGS. This whole maneuver is a precursor to printing money.
Trading Game Plan GLD dipped to $150 and it found support. It has been strong the last two days. If it can close above $158, I would buy the Feb $155 calls. I want to give this trade time. Gold has been weak and it might need a little more time to form a base before it rebounds.
Stock Option Track Record 1/5/12 - Bought 5 GLD Feb $155 calls @ $6.20. 1/25/12 - Sold 5 GLD Feb $155 calls @ $6.65. The options traded as high as $6.75, but I believe $6.65 was the average price in the first 20 minutes. We just missed a huge trade in this one. Two hours after we got out the FED surprised the market and gold rallied $80. We made $205 (5 x 4.45 less commissions 2 x $10).

Bullish	DMND
Stock Option Trading Strategy Sell a put spread and buy a call calendar
Stock Option Trade Sell 10 DMND Jan $30 puts (DMND 12M30.00) and buy 10 DMND Jan $25 puts (DMND 12M25.00) for a net credit of $1.00 - Day. Also, buy 10 DMND Feb $35 calls (DMND 12B35.00) and sell 10 DMND Jan $36 calls (DMND 12A36.00) for a net debit of $2.30 - Day. If all of the Jan options expire, we will own the Feb calls at a great price.
Stock Option Target sell 10 DMND Feb $35 calls @ $4.40 - Day. Filled 1/31/12
Stock Option Stop Contingent on the stock below $28.70, buy back the put spread - GTC
Stock Description Diamond Foods, Inc. engages in processing, marketing, and distributing snack products. It provides snack products, including roasted, glazed and flavored nuts, trail mixes, dried fruit, seeds, microwave popcorn products, and potato and tortilla chips under the Emerald, Pop Secret, and Kettle brands.
Option Trade Rationale In September, the company earned 52 cents a share on an adjusted basis in the fourth quarter. This topped market expectations of 44 cents a share. Revenue for the quarter rose 32 percent to $232.8 million, also surpassing analysts' estimates of $216.3 million. For the full-year, the company now expects to earn $3.05-$3.10 per share on an adjusted basis. Analysts were expecting $3.10 per share, according to Thomson Reuters I/B/E/S. It also forecast full-year net sales of $1.85-$1.95 billion, compared with the $965.9 million it reported in fiscal 2011. The stock trades at a forward P/E of 9
Trading Game Plan Strong demand for the company's snack food business has driven at least eight consecutive quarters of market-beating profits. Diamond Foods has also regularly raised its outlook over this period. In September, the company said it is being investigated by the SEC for walnut negotiations with growers. The payments were allegedly delayed to improve earnings. Weeks later, one of the board members committed suicide. Even though the events are unrelated, investors errored on the side of caution and dumped the shares. All of this news cast a dark cloud over the Pringles deal the company made with PG. That deal already got antitrust approval and it was ready to go. Now that DMND shares have dropped, the deal is in limbo since shares were going to be used as part of the deal. I feel the stock reflects the worst case scenario. It has formed a base and it looks ready to lift off. Food stocks have been very strong in this uncertain market and I believe the company will be able to distance itself from this rough patch quickly.
Stock Option Track Record 1/3/12 - Sold 10 DMND Jan $30 puts (DMND 12M30.00) and bought 10 DMND Jan $25 puts (DMND 12M25.00) for a net credit of $1.00. Also, bought 10 DMND Feb $35 calls (DMND 12B35.00) and sold 10 DMND Jan $36 calls (DMND 12A36.00) for a net debit of $2.15. 1/31/12 - Sold 10 DMND Feb $35 calls @ $4.40. The stock ran up and the momentum stalled. The option IVs were incredibly high and time decay would have become and issue so we took profits. This was a nice trade and we made $3200 (10 x $3.25 less commissions 5 x $10).