What I Like About This Market
Monday, April 5
Friday Recap: There is about a
70% chance that Friday was a turning point for the market. Not only did most of
the major indices close over their 50 day moving averages (MA), but more
importantly the jobs report has changed the perspective on the economy and the
markets. March’s job growth was impressive, but more importantly the previous
months growth numbers were revised upward to clearly paint a positive economic
picture.Â
The strongest index of the day was the NASDAQ, up
over 2% and closing on its highs of the day. That’s stiff price action.
Technology leading the markets is a positive bull trend we’ve been following for
the past week ever since the NAS touched its 200 day moving average. I expect
continued strength and leadership out of the NAS, and in fact when this index
reaches critical technical benchmarks it will provide clues to overall market
direction based on its reactions. Further, when the Dow starts to gain relative
strength to the NAS that will provide an important clue that this market is
getting tired – and it’s time to rotate the portfolio!
The S+P was up close to 1% on Friday. While the
index performed slightly worse than the Dow, it traded significantly above its
50 day MA. I expect S+P 50 day MA to be significant support, with a break and
hold under this level a negative for the entire market. Before we reach the
recent tops of the market, we could come down and test the 50 day MA… and that
will be an important test.Â
Even though it slightly outperformed the S+P
Friday, I still consider the Dow the weakest of the major indices. I think the
50 day MA support on the Dow is not going to be as stiff as will be the Dow’s 20
day EMA support point.  Â
Longer Term Prediction: I think
ultimately we could move higher in the near term, with potential to move lower
after our April options expire, and I have positioned our portfolio as such. We
have to consider that we could crash lower if we can’t pierce resistance or if a
major event terrorist event occurs. For now, my major concerns with this market
are 1) terrorism; 2) I don’t like the fact that the move down was on higher
volume than the move up; 2a) Fed talk scares market, which could keep a lid on
this party. What I like about this market is that earnings season could be a
blow-out, pushing us to reach our near-term and longer-term targets rather
quickly.
Prediction for Monday: The
markets could touch both sides of the flat line on Monday with a potential
upside bias. On the downside with the cash Dow, we’ll watch the 10420-30 level,
as well as the 50 day moving average. After that, if 10400 is broken, I’ll
watch for buyers to emerge at 10380. On the S+P I’ll watch the 50 day moving
average near 1133. On the upside with the cash Dow I’ll watch for light sellers
to emerge at 10480 with more significant resistance near 10520. I’m not looking
for a strong upside today, with a potential lid on the market near 10550.Â
Portfolio Strategy: Right now we are slightly delta
positive, close to neutral. We’re going to look to get additionally delta
positive after the open and on a potential move lower.Â
Trading Results from Previous Day and Current Portfolio Status:
Daily Profit: $165
10500 April Mini Dow Put Options: We are short one put option. Yesterday
this option closed at 117, down 63 points from the previous close (each point is
worth $5). Profit yesterday with this position was $315.
10000 April Mini Dow Put Options: We are short four put options. Yesterday
this option closed at 15, down 15. Profit yesterday with this position was $300.
10400 April Mini Dow Call Options: We are short two call options. Yesterday
this option closed at 135, up 41. Loss yesterday with this position was $410.
9700 April Mini Dow Put Options: We are long 2 put options Yesterday they
closed at 5, down 7. Loss on the day with this position was $70.
10400 April Mini Dow Put Options: On 4/2/03 we sold two mini Dow put options
for 80. Yesterday this option closed at 75, down 5. Profit on the day with
this position was $50.Â
9900 May Mini Dow Put Options: On 4/2/03 we bought two mini Dow put options
for 69. Yesterday this option closed at 67. Loss on this position was $20.Â
Mini Dow Futures: We are now flat the mini Dow future.
Margin required to trade this portfolio: $9,752