Tuesday’s Levels

Monday Recap: 
In our prediction for Monday
we said the cash Dow would move lower and we identified a first level of support
near 10400.  In fact on Monday, the Dow started the day lower, testing and
finding support near the 10400 level.  At that point, there looked like a chance
that the Dow would break this important support level.  However, buyers found
courage and pushed the market’s measure higher to ultimately close at 10437.

 

 

You’ll note that the Dow ended
the day below its 50-day moving average…

 

 

…while the S+P closed
over its 50-day MA (below). 

 

 

However, perhaps the most
important index of the day was the NASDAQ.  

The NAS leaped over both its
20-day exponential moving average and 50-day MA in a single bound. 

 

 

Prediction for Tuesday: 
With the NAS clearing important resistance and leading the market higher, we
have taken away one of my primary concerns in this market.  The question is,
where do we go from here?

 

We may be at the early stage
of a new leg higher.  If we clear and hold resistance I think there is a good
chance we could challenge the recent highs.  A key point to note is that all the
indices are above 50 on the RSI and in fact the S+P and Dow both bounced off
this level.  We could be headed for the 70 level.  I want to see how the markets
hold up in the first 45 minutes to an hour of cash trading this morning before
making the decision on a new leg higher. 

 

 

On the NAS that means 2075
with a first level of resistance near 2040.  The chart above is starting to look
like a nice rebound pattern is forming.  However, we’ll still need a little
confirmation, and that might come today.  I’d like to see a clear and hold above
the 2020 level to confirm same.

 

 

On the S+P that means 1150
with a first level of resistance just above 1140.

 

On the cash Dow that means our
upside target would be the previously toppy 10550 area (B in the chart at the
top of this report).  Getting here I want to see a clear and hold of 10470-80 (A
on the chart at the top of this report).  If we clear this level we could see a
lot of trading in a value distribution region near 10500-20 with occasional
tests of the 10550 level.  In retrospect, the triple bottom at 10330 could be
significant, with the test of 10400 yesterday an important sign to bulls it
could be time to move higher. 

 

Portfolio Strategy: 
Right now we are slightly delta negative.  We may switch to positive this
morning if the indicators look good.  Also note that yesterday we had the
transaction expense of establishing a new options position. 

 

Yesterday’s Results
and Current Portfolio Status:

 

Daily Loss: $20

 

9900 May Mini Dow Put Options: We are long 2 put
options.  Yesterday this option settled at 45, up 4.  Profit yesterday on this
position was $40. 

 

10100 May Mini Dow Put Options: On 4/19/04 we
sold 2 Mini Dow Put Options, one at 70 and the other at 66.  Yesterday this
option settled at 70.  Loss yesterday with this position was $20. 

 

10600 May Mini Dow Call Options: On 4/19/04 we
sold 2 Mini Dow Call Options at 66.  Yesterday this option settled at 70.  Loss
yesterday with this position was $40. 

 

Mini Dow Futures: We are flat the mini Dow
future.

 

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.

 

 

Charts from
www.stockcharts.com

 

 

DISCLAIMER:

Past performance is not necessarily indicative of future results.

There is a substantial risk of loss in commodity futures and options
trading. It is not suitable for all investors.  Only you can determine
whether this trading suits your particular needs and risk tolerance.

All profit and loss representations are hypothetical and based on the real
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similar to those shown.