Here’s What I Expect On Monday

Thursday Recap: We had another good day Thursday with a
profit of $345.  On the week, we made a profit every day and ended the week with
decent 5% return on investment, or $925 profit (based on our recommended account
size of $20,000, however the average trading margin requirement is half that
amount).* 

In our prediction and portfolio strategy sections
Thursday, we identified the 10550 level on the cash Dow as the first area where
we would become sellers.  In fact in the pre-open futures market we e-mailed
members to execute a sell order at 10534 in the mini Dow futures which would
have been the equivalent of 10554 on the cash Dow.  When that order was filled
early in the morning, our portfolio became slightly delta negative on the
day.    

Above you will see the exact chart and
annotations posted Thursday morning, the only difference being Thursday’s price
action was added.  In the face of the pre-open futures pointing to a
dramatically higher open, we noted on the chart the cash Dow looked toppy.  We
expected the Dow to start the day higher, but potentially run into sellers.
Further, note that in our predictions over the past few weeks and in our
prediction on Thursday morning, on the Dow weak support was identified at the
50-day moving average, support we said would be broken if tested.  That occurred
Thursday.  We also said that such a break would lead to a test of stronger
support near the Dow’s 20-day exponential moving average. That occurred as well.

^next^

However, in Thursday’s morning prediction also
noted was that the 50-day MA on the S+P would likely provide strong support, in
contrast to the Dow’s weaker 50-day. In our prediction we also noted that any
rally in the S+P might find sellers near 1050, which closely matches the highs
of the day set early Thursday morning, near the time we issued our sell signal. 
Again, above you will see the exact chart and annotations we posted on Thursday
morning, with the only difference being Thursday’s price action was added.

In our report dated April 6 you will recall we
said that if the market fell lower the S+P would likely fill the gap (A) above.
The question now becomes will support hold, or will resistance be broken?

From the point the NASDAQ touched its 200-day
moving average a few weeks ago we predicted the NAS would outperform the Dow and
S+P.  That trend continued Thursday, with the NAS once again up .13% on the day
while the Dow and S+P were down .36% and .11% respectively.  That’s a positive
for market bulls. 

Prediction for Monday: At the
end of the trading day Thursday, we mentioned in an e-mail to members saying
that if it were not a long weekend with event risk, we would buy the market.  In
fact on Monday I expect the markets to move higher.

On the upside with the cash Dow, we’ll watch the 10480 level, then again
resistance near the 10510-20 region.  Ultimately I expect both these resistance
points to be broken, and we’ll move to the magnetic 10550-60 level.  This will
likely be a point of inflection for the Dow: it will either decide to take
another leg higher or it will test the lower end of the consolidative region we
have identified in the chart above.  At this point, I’m going to want to get
close to neutral/negative.  If the Dow clears this level, it would indicate a
new leg higher, with potential sellers first emerging at 10610, then again at
10660-80.

Likewise on the S+P I’ll watch for a move to the
1050 level, where sellers are likely to emerge.  The S+P will then either move
to a new leg higher or move lower to test support.  If the S+P breaks lower
level support neaer 1134, I think we’ll find strong bid interest around the 20
day EMA and chart support near 1130.  If broken, this could indicate significant
weakness and would point to a move to additional support near 1025.

If the market does get negative, I’ll keep an eye on the NAS.  If we break
support at the A point in the daily chart above, I’m going to then watch for a
gap fill with potential buyers emerging near the lower gap and 50 day MA near
2018.  On the upside I’ll watch resistance just under the 2100 level. 

Portfolio Strategy: Right now we
are slightly delta positive. Our strategy is that we will get delta positive at
the lower end of the the consolidative region above.  If the markets break the
20-day EMA on an intraday basis, we’ll get closer to delta neutral/negative.  If
we close under the consolidative region and below the 20-day EMA we’ll get
negative. 

Once the market reaches the upper end of the consolidative region, we’ll get
close to neutral or negative.  At this point we may purchase a VIX (volatility)
future if that index is at a low level.  If the Dow breaks above the
consolidative region intraday we’ll get neutral/positive.  If we break and close
above this region, and we have room to run on the upside, well get additionally
delta positive. 

Stay close to your e-mail, we may have a trade this morning. 

Trading Results from Previous Day and Current Portfolio Status:

Daily Profit: $345

9700 April Mini Dow Put Options: We are long 2
put options. Yesterday they closed at 4, up 1 (each point is worth $5). Profit
on the day with this position was $10.

9900 May Mini Dow Put Options: We are long 2 put
options.  Yesterday this option closed at 63, up 8.  Profit on this position was
$80.

10000 April Mini Dow Put Options: We are short
four put options.  Yesterday this option closed at 7, unchanged. Profit
yesterday with this position was $0.

10400 April Mini Dow Call Options: We are short two call options. Yesterday this
option closed at 105, down 35.  Profit yesterday with this position was $350.

10400 April Mini Dow Put Options: We are short
two put options.  Yesterday this option closed at 70, up 20.  Loss on the day
with this position was $200.

10500 April Mini Dow Put Options: On 4/7/04 we
bought one mini Dow put option for 101.  We are now short one put option. 
Yesterday this option closed at 90, up 25 from the previous close. Loss
yesterday with this position was $125.

Mini Dow Futures: We came into the day long one
mini Dow option.  We sold one mini Dow option at 10534 for a net gain of 46
points off yesterday’s close.  Profit yesterday with this position was $230.  We
are now flat the mini Dow future.

Current Projected Gamma: -92.39

Mark Melin

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.

 

DISCLAIMER:

Past performance is not necessarily indicative of
future results.

There is a substantial risk of loss in commodity
futures and options

whether this trading suits your particular needs and risk tolerance.

All profit and loss representations are
hypothetical and based on the

Real time signals generated by The Dow Trader.  The results have not been
adjusted to reflect slippage or commission charges.  No representation is being
made that any account will or is likely to achieve profits or losses similar to
those shown.