Friday’s Levels

  • July 2, 2004
  • Mark Melin

Thursday Recap: You’ll recall
that yesterday’s report disclosed that major bond players had placed some big
time bets that interest rates would move lower.  We also reported rumors from
the trading floors in Chicago that interest rates could break support, and in
yesterday’s prediction we said the 10-year note would move below 4.6%.  That
occurred Thursday, as the note broke support and finished at 4.56%.

                           
Charts from www.stockcharts.com

Stocks were behaving badly Thursday, as bulls had
a case of buyers remorse in the face of a falling interest rate environment. 
While interest rates broke and held support, stock buyers didn’t much care.  
Some blamed it on terrorist concerns over the long weekend, some said buyers
were said to have change their minds on the importance of rising rates. 
However, it might not matter.  Stocks started the day lower by grinding lower,
started to free-fall just before the lunch hour, consolidated and then sold off
again, with the Dow touching a low of 10275 before it closed at 10334. 

^next^

Prediction for Friday:  Interest
rates will continue to fall Friday.  The question is, how will that impact
stocks.  Ultimately I think stocks could head down and test their 50-day moving
averages.  On the cash Dow that means a test of 10250 and on the S+P that means
a potential test of the 1120 area.  When we test these levels, it could provide
a buying opportunity if they hold.   However, there is a chance we’d get an
intraday bounce.  We’ll first watch the 20-day EMA, and then more significant
resistance near 10400-30.

Portfolio Strategy:  We’ll
likely move to get close to delta neutral today. 

Previous Day’s Results and Current Portfolio Status:  

Daily Loss: $1,005

9900 July Mini Dow Put Options

Long 4

Yesterday it closed at 15, up 4. 

Profit yesterday with this position was $80.

10300 July Mini Dow Put Options

Short 5. 

Yesterday it closed at 105, up 48. 

Loss yesterday with this position was $1,200.

10600 July Mini Dow Call Options

Short 2

Yesterday we bought one back at 25.

Yesterday it closed at 12, down 18. 

Profit yesterday with this position was $115.

We are now short one option 

Mini Dow Futures

We are now flat the mini Dow.

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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.

 

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