If The SOX Busts This Level, The Markets Could Get A Lift

  • November 19, 2004
  • Mark Melin


Thursday Recap:  
We had a
good day Thursday with a profit of $108 in each $20,000 member portfolio.  The
markets held up nicely on Thursday, particularly with the SOX index putting
together a rather nice day.  The semiconductor index started day on the downside
and the market was looking weak.  But then the pull of the Santa Claus rally was
too much, and the polar express bull train powered the SOX ahead past the
200-day moving average and moved to challenge yesterday’s high near 446.  The
question is will the SOX break through recent highs and hold over the 200-day
moving average? 



The cash
Dow started the morning gap higher, but then when the SOX and NASDAQ were
underwater and looking weak, the market’s measure turned down, finding support
at the previous breakout point near 10550.  At the time the Dow was testing the
lows of the day, the S+P was negative on the day.  But then the tech markets
found support, and while they flew higher from their lows the Dow and the
broad-based S+P moved marginally higher, with the cash Dow ending up some 23
points and the cash S+P lagging on a relative basis, up only 1.61 points on the
day.


^next^



Prediction for Friday:  I wouldn’t be surprised to see the markets take a
breather from what has been a breathtaking rise from the start of the month at
Dow 10,000 (and the point we turned delta positive).  However, having said that
its hard to fight the trend.  On the upside tomorrow we could once again test
the 10600 level, and this could be a short-term flash point.  If the cash Dow
busts past recent highs, we could then see a strong finish to the week and march
towards our 10750 target.  However, I wouldn’t be completely surprised to see a
test and failure at 10600 with a consolidation.  Ultimately I think the Dow is
going to be a follower on Friday, taking it’s queue from the market-leading tech
indexes, such as the SOX.  If the Sox can bust the 446 level I think all markets
could get a lift. 



Portfolio
Strategy: Right now we are delta positive, but yesterday we sold an additional
10600 call and got the portfolio closer to neutral.  We could get delta negative
on a move to 10600 on the Dow, depending on market internals Friday.  However,
if the Dow breaks recent highs above 10600 we would then potentially buy a mini
Dow future and flip to positive.  Stay close to your e-mail on Friday.    

Mark Melin