Here’s What I See For OIl

  • August 27, 2004
  • Mark Melin

 

Thursday Recap:  Oil
once again dropped significantly in price, touching our target level a little
quicker than I anticipated.  I think the
major drop in oil prices is over and I expect a consolidation near current
levels, with support holding… for now.  All predictions, of course,
assume that we don’t experience a major terrorist event.  While oil
dropped in price, the stock market really couldn’t find much reason to move
higher.  When a market can’t rally
on good news that’s sometimes a sign that buyers are getting tired. 



In
fact on Thursday, the cash S+P reflected the tired look of stock bulls.  
After touching both sides of the flat line, the broad-based stock index
finished little changed on the day and ended above its 50-day moving average. 
The question is, what will happen to stocks over the next few days?



Prediction
for Friday:  Today we will touch both sides
of the flat line with a potential sell off in the afternoon.  Ultimately I
expect the stock market to consolidate over the next few days. 
I think the S+P could test support near 1100 and then again the 20-day
EMA near 1092, and if those levels hold — which I think they will — I expect
a rally to start potentially towards the end of next week.   Ultimately
I think we could see a nice rally, with all major indexes closing substantially
higher as the year comes to a close. 



Portfolio
Strategy:  No change from yesterday. 
Right now we are delta negative.  We’re
likely to stay negative until the following: the cash Dow tests support near the
20-day EMA or 10,000; the Dow breaks the 10200—50 level; or until Monday or
Tuesday.

Previous Day’s
Results and Current Portfolio Status: 

Daily Loss: $85

10100 Sept. Mini Dow Call Options

Long 5. 

Yesterday these options closed at 155, down 7. 

Profit yesterday on this position was $175.

These options expire September 17.

10300 Sept. Mini Dow Call Options

Short 9. 

Yesterday these options closed at 55, down 2. 

Profit yesterday with this position was $90.

These options expire September 17.

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.