Monday’s Levels
Friday Recap: We had a good day
Friday with a profit of $235.Â
You will recall that in our prediction for Friday
we expected an oversold bounce, but we also said it would be interesting to see
how far the market would bounce and if that bounce held. In fact the major
indices all started higher, with the cash Dow bouncing to test the 10330 level
in the morning. Ultimately, however, the Dow couldn’t hold, and it finished the
day down some 70 points to end at 10225. As you can see from the chart we
posted Friday morning (below), the cash Dow pretty much remained within the
support / resistance channels we had identified. The Dow spent most of the
morning testing the 10330 level. Then late in the afternoon — as the NASDAQ
(below) was having serious trouble — the Dow fell down to third level support
before falling below 10250. Reflecting the negative tone of this market,
decliners beat advancers by 3 to 1 on the big board with stiff volume of 1.8
billion shares traded.Â
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Charts from www.stockcharts.com
Perhaps the main market
catalyst of the day was
the NASDAQ. As readers know, we’ve been watching the NAS to lead this market to
the downside for some time now. Below I posted the exact chart and notations
from Friday morning’s report. You’ll note that we identified A as an important
target. That’s where the 200-day moving average resided, and after testing this
support the NAS blew through it like Michael Jackson going through new lawyers.Â
A major event that potentially indicates trouble ahead. Not only did it blow
past important support, but it did so on huge 2.8 billion volume. We’ll talk
more about the NAS and the impact it will have on the overall market in today’s
prediction. Â
 
Like the Dow, the S+P finished the day down .59%,
making another lower low and pretty much staying within predicted support /
resistance channels.Â
At some point we’re going to get an oversold
bounce in these markets. The question is, when will that bounce occur? How far
will it take the markets?
^next^
Prediction for Monday: We’re
likely to once again attempt a bounce on Monday. The key index to watch is
going to be the NASDAQ.
On the NASDAQ if we can clear and hold the
200-day moving average (A) then we might get a bounce, potentially to the moving
averages above (B). I expect any bounce to be short lived and potentially just
another wave higher with a more serious wave lower to come. If we can’t clear
the 200-day moving average, I would then expect a challenge of chart support at
1900.Â
On the cash Dow, if the chart support (A) holds,
then I think we’ll move to test resistance. Our first level to watch would be
10300 — which would likely be broken — and then would lead to a more important
test of 10330. About the time the Dow is testing 10300-30, the NASDAQ could be
testing its 200-day MA. If the NASDAQ clears and holds its 200-day MA, then I
would expect a move into the 10370-10400 level, where chart resistance, moving
average resistance and some Fib retracement levels might keep a lid on this
market. If the market reaches this level — which might happen over the next
few days — it might be a good point to become a seller. On the downside, we’ll
watch the recent lows near 10220. If this breaks, we could get some significant
lower levels, with 10100-10080 a first level of support, then major support
coming in at 10000.
Portfolio Strategy: Right now we’re delta
negative. If the NAS moves and holds over its 200-day MA, we may get slightly
positive. Also, we’re going to look at switching our mini-Dow futures for a VIX
future.Â
Yesterday’s Results and Current Portfolio Status:
Daily Profit: $235
Â
10100 May Mini Dow Put
Options: We are short 2 put options. Yesterday this option settled at 100, up
20. Loss yesterday with this position was $200.Â
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10100 June Mini Dow Put
Option: We are short 2 put options. Yesterday it closed at 187, up 27. Loss
yesterday with this position was $270.
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10600 May Mini Dow Call
Options: We are short 2 put options. Yesterday this option settled at 15, down
7. Profit yesterday with this position was $70.Â
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10600 June Mini Dow Call
Option: We are short two call options. Yesterday it closed at 62, down 10.Â
Profit yesterday with this position was $100.
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Mini Dow Futures: We came
into the day short one mini Dow future. We sold one additional mini Dow future
at 10242. Yesterday it settled at 10203, down 68. Profit on this position was
$535. We are now long two mini Dow.Â
Trading Method:Â 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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comments send an e-mail to
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Past performance is not necessarily indicative of future results.
There is a substantial risk of loss in commodity futures and options
trading. It is not suitable for all investors. Only you can determine
whether this trading suits your particular needs and risk tolerance.
All profit and loss representations are hypothetical and based on the real
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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.