Monday’s Levels

                                
Charts from www.stockcharts.com

After what looked on the surface like a significant technical breakout
Thursday, the cash Dow and spent most of the day lower.  The Dow started stair
stepping lower to ultimately find support just above the 10400 level.  From here
the Dow stair-stepped higher, ultimately climbing to resistance near 10480
before settling at 10472, up some 12 points on the day. 

Above I posted Friday’s morning’s prediction chart with the addition of
Friday’s end of day price action. As you can see from yesterday’s chart, in the
face of some pretty strong technical indications I wasn’t necessarily a raging
bull. Like the Dow, this chart shows a somewhat lame follow-up to Thursday’s
price action.  However, the next few days might be interesting.

Perhaps the best performer of the day was the NASDAQ, clearing previously
identified chart resistance and ending the day up 16.9 points.  By far the best
performer of the major indices, the NAS was up .83% on Friday.

Prediction for Monday: I expect to see action on both sides
of the flat line Monday with a potential upside bias.  Ultimately I’m going to
watch for a touch of resistance at some point this week, which might present a
selling opportunity.  However, if bulls don’t get the courage to test resistance
soon we could once again test some lower levels. 

On the cash Dow, I think we’ll ultimately test a trendline and chart support
near 10480.  If we clear this, we’ll move to test the 10550 level.  You’ll
remember that we previously sold near the daily highs when the market reached
this level back on March 13 and March 8.  If we can’t clear A on the chart
above, we’ll likely test C and D at some point. 

Like the Dow, the cash S+P needs to clear trendline resistance to challenge
near term highs around the 1150 level.  If we can’t do that, we’ll likely head
for 1130… or lower. 

On the NAS, let’s watch A on the chart above.  If that level is cleared, we
could head to B.  If we can’t clear that level, another test of the 50-day MA
and/or 20 day EMA is likely in the offing.

Longer Term Issues:  On the very day less than a month ago when the
monster unemployment number/revision was announced, I noted that a new word
would eventually creep into the lexicon of investor concerns: inflation.  When I
made that statement I didn’t think inflation would be an immediate concern,
rather something we’d probably see creep into the list of issues.  In fact,
we’ve seen inflation bandied about recently.  However, I think overall the next
several months – and most likely before the election season concludes –
inflation will rear its ugly head and derail this market on more than one
occasion. 

Portfolio Strategy: Right now we’re close to delta neutral. 
Once the cash Dow reaches 10550 we’re likely to move to a negative stance.   

Yesterday’s Results and Current Portfolio Status:

Daily Profit: $60

 

9900 May Mini Dow Put Options: We are long 2 put options.  Yesterday this option
settled at 20, down 10.  Loss yesterday on this position was $100. 

 

10100 May Mini Dow Put Options: We are short 2 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 40, down 10.  Profit yesterday with this position was $100. 

 

10100 June Mini Dow Put Option: We are short 2 put options.  On 4/22/04 we sold
1 Mini Dow Put Option at 103.  On 4/23/04 we sold one Mini Dow Put Option at
104.  Yesterday it closed at 102, down 18.  Profit yesterday with this position
was $100.

 

10600 May Mini Dow Call Options: We are short 2 put options.  On 4/19/04 we sold
2 Mini Dow Call Options at 66.  Yesterday this option settled at 60, 5.  Loss
yesterday with this position was $50. 

 

10600 June Mini Dow Call Option: On 4/21/04 we sold 1 Mini Dow Call Option at
97.  Yesterday it closed at 135, down 2.  Profit yesterday with this position
was $10

 

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

Questions from Readers:  I’ve had a few questions from
readers asking what is the Parabolic SAR and wondering how I use it?  Below is
my answer:

The Parabolic SAR (Stop And Reversal) was developed by Welles Wilder, who
also created the RSI (Relative Strength Index).  I use both these indicators in
my technical work.  In both cases my use of these indicators differ slightly
from their original design.  Parabolic SAR is most commonly used for setting
stops than for establishing the trend. However, I have found that as a trailing
stop it is not as effective as serving as a market directional indicator and a
minor support and resistance point, which is how I use it under certain market
conditions and almost always in combination with other indicators.  Under
certain circumstances the SAR will confirm to me a trend change.  Further, when
the SAR is broken we can often count on price action to occur in the direction
of the SAR predicted indication.  For instance, if SAR support is broken you can
often count on price action to occur below the support region to some extent. 
However, I have found in choppy markets the trailing stop is often too liberal
and the market will eventually break the opposite SAR indicator after the profit
opportunity has evaporated.  As of this writing (April 25, 2004), I noted in my
market reports that the SAR is likely not indicating a trend change.  Like any
technical indicator, it is not absolutely accurate and it is up to the
technician to interrupt the indicator as it relates to the market trend.

If you have other questions or suggestions, please send an e-mail to

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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