Friday’s Levels

  • July 30, 2004
  • Mark Melin

Technical Analysis and Trading Strategy

By Mark Melin, technical analyst

Friday,
July 30

Thursday Recap: We had yet
another good day with a profit of $160.

In our prediction for Thursday, the report said
the NASDAQ and the S+P would likely out perform the cash Dow.  That occurred. 
Further, the report said we would likely see a continuation rally and a test of
moving average resistance.  That occurred, as on Thursday the cash Dow started
the day higher, initially testing and failing at the 20-day exponential moving
average.  Then around lunchtime the cash Dow broke the 20-day EMA and headed for
the hills like a kid caught swimming uninvited in the neighbors pool, the Dow
quickly climbed back over the fence to move to the downside.  However, the Dow
got courage again late in the day to make one last charge at the 20-day EMA, but
to no avail, as the Dow fell back to end the day at 10129, up a paltry 12 points
on the day – and in part bulls should be happy about this… 

That’s because, while the Dow was under
performing the market, the NASDAQ and S+P were leading – a good sign for market
bulls.  For its part, the NAS climbed above and held previous resistance, as did
the S+P, ending the day above the resistance point we had previously
identified. 

Prediction for Friday:  We could
touch higher levels intraday Friday, but if resistance at the moving averages
holds the markets could back off and move lower from resistance.  On the cash
Dow we’ll once again watch the 20-day EMA.  If that breaks intraday – and the
NAS is leading the market – we could see some legs – and a potential run into
the 200-day and 50-day moving averages just above 10200 – and this might be a
good point to take profits.  However, if the Dow breaks the 20-day EMA to the
upside and then falls back down, we could see some short-term, intraday selling
pressure on the market’s measure.  Further to the downside, a sustained move
below 10100 might indicate further weakness to come.  On the S+P, I expect to
ultimately see a test of the 200-day moving average.  Perhaps most significant
will be the S+P.  It’s getting pretty close to moving average resistance near
1104 and 1106, which has been our target all week.  If the Spos break
resistance, we could run higher; however, that is not as likely as an initial
test and then a back off from resistance on the first try.  It’s been a pretty
positive week of gains… and markets don’t go up in straight lines. 

Portfolio Strategy:  Yesterday
we locked in some profits on what has been a pretty strong week for our
portfolio.  We’re still delta positive, but once the markets move into
resistance near the 200-day moving averages, we’re likely to get negative. 
Members, watch your e-mail for details. 

Previous Day’s Results and Current
Portfolio Status:  

Daily Profit: $160

10100 Sept. Mini Dow Call Options

Long 3

Yesterday the closed at 225, unchanged. 

Profit yesterday on this position was 0.

These options expire September 17.

10300 Sept. Mini Dow Call Options

Short 4

7/29 we sold 4 Mini Dow Call Options at 120

These options closed at 112. 

Profit yesterday with this position was $160.

Charts from
www.stockcharts.com

For questions e-mail,

subscriptions@dowoptionstrader.com

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.