Thursday’s Levels

  • April 29, 2004
  • Mark Melin

Wednesday Recap:
In our prediction for
Wednesday, we painted a negative picture for the markets.  In fact, on the cash
Dow we noted that moving average support could be broken but that more
significant support existed near 10330.  In fact, the cash Dow moved lower
Wednesday, initially breaking 10400 and moving average support to ultimately
find buyers near the daily low of 10333 before ending the day at 10342.  On the
day, advancers beat decliners close to 4 to 1 on the big board.

                             
Charts from www.stockcharts.com

 

Unlike the Dow, the S+P had a
little more significant support near the moving averages.  Yesterday we
predicted that if moving average support was broken, we would see a move to
chart support, SAR and Bollinger band support (C in the chart below).  That
occurred.  The question is, will this support hold?

 

 

The worst performer of the day
was the NASDAQ.  Based on our recent reports, this shouldn’t come as a surprise
to anyone.  So long as defensive stocks lead this market, the NAS will likely
continue to lead to the downside — until we get a bounce.   

 

^next^

 

Prediction for
Thursday:  We have noted for the last month that an ugly word is going
to start to haunt market bulls.  That word, inflation, is going to start
creeping into the market and will likely linger throughout the summer. 
Inflation and the accompanying rate concerns are likely to keep a lid on this
market in the near term.  In fact, when the cash Dow recently touched 10540 we
could have touched a near term high. 

 

 

The question going forward is
how low will we go and when will we get a bounce?   On the cash Dow, we’ll first
watch the 10330 level.  If this is broken, we could see 10300 and then more
significant support near 10250.  Interestingly, if support holds we could get a
bounce.  On the upside, if the cash Dow can manage a close above 10330 it might
indicate we’ve found a bottom, with our next upside test moving average and
10400 chart resistance.  On the S+P, let’s watch the 1115 level.  If this breaks
it could indicate overall market weakness and a more significant move lower. 

 

Portfolio Strategy: 
Right now we are slightly delta negative.  Yesterday we sold a 10600 June call
at 91.  Let’s watch the open of this market, and we may actually get long
depending on the market set-up.  Stay close to your e-mail.    

 

Yesterday’s Results
and Current Portfolio Status:

 

Daily Loss: $35

 

9900 May Mini Dow Put Options:
We are long 2 put options.  Yesterday this option settled at 30, up 13.  Profit
yesterday on this position was $130. 

 

10100 May Mini Dow Put
Options: We are short 2 put options.  Yesterday this option settled at 60, up
28.  Loss yesterday with this position was $280. 

 

10100 June Mini Dow Put
Option: We are short 2 put options.  Yesterday it closed at 135, up 38.  Loss
yesterday with this position was $380.

 

10600 May Mini Dow Call
Options: We are short 2 put options.  Yesterday this option settled at 35, down
30.  Profit yesterday with this position was $300. 

 

10600 June Mini Dow Call
Option: We are short two call options.  We sold an additional call 4/28/04 at
91.  Yesterday it closed at 95, down 43.  Profit yesterday with this position
was $195

 

Mini Dow Futures: We came into
the day flat the mini Dow future.  We are now flat the mini Dow. 

Trading Method:  Mark Melin strategically
short sells options and then directionally trades within this short options
portfolio, always hedging one position against another to generate consistent
profits.

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