Monday’s Levels

Friday Recap: I love short selling options.  On Friday I had
the direction of the market in part wrong – yet I still made money with a nice
daily profit of $305. 

I predicted the cash Dow would move lower and consolidate near the 10155
level before moving higher Friday.  Near the end of the trading day Thursday, I
recommended a sell in my service.  I had a high percentage set-up in mind.  Sell
at the end of a big up move then set limit orders to buy the mini Dow futures at
a likely consolidation point.  Unfortunately the market never reached my
re-entry target. However, because I directionally trade the market with futures
and a short options position, I can make money even when the market doesn’t move
in my direction, which is what happened on Friday. 

Our 10155 consolidation point aside, in other predictions for Friday, we said
there was a 75% chance that the cash Dow would explore the 10250 level with a
test of the 20 day exponential moving average (EMA) in the offing. You’ll recall
that in our predictions from early last week, after the Dow double bottomed at
10,000 and we switched the portfolio to delta positive, we had said that our
first near term bounce target was the 20 day EMA.  In fact on Friday, the Dow
started by consolidating to the downside, then moved higher, first piercing the
10250 level, backing off, then moving higher to test the 20 day EMA.  The time
price opportunities definitely favored sellers when the Dow got close to this
resistance point, as sellers quickly slapped the market’s measure back down to
the flat line, to end at 10213, down some six points on the day.

The market leading NASDAQ was the first major index to reach and break
intraday resistance at the 20 day EMA, however it couldn’t hold that level.

Prediction for Monday: This coming week I expect the markets
to do pretty well, with potentially a good — and perhaps a very strong week to
the upside.  I think there is an 85% chance the Dow, S+P and NAS will challenge
their respective 20 day EMA.  Further, I think there is a good chance the 20 day
EMA will be broken and we’ll move to challenge chart resistance and potentially
move to the 50 day moving averages.  If we can break and hold resistance, we’ll
move higher in a likely stair-step fashion from one resistance point to the
next.  However, if we can’t break resistance, we could move lower and test
support.  There are a few support points that if broken would likely take the
indices to new recent lows.  Here are the numbers we’ll watch:

On the downside with the cash Dow, we’ll keep our eye on soft resistance near
the 10170-80 level. If this is broken it could indicate a more important test of
the 10125-10090 support region.  If this is broken, we’ll likely test
significant support near 10,000 – and there is a chance this time 10,000 could
break.  On the upside, we’ll watch for a potential move into the magnetic 10250
level, then another test of the 20 day EMA.  A break of this level would
indicate a move to much more significant resistance near 10325.  If this is
broken, watch the 50 day moving average for sellers to come out.       

New Trade Recommendations:  I have a few high percentage,
positive risk/reward trades that I’ll e-mail to members once I see how the
markets set up.  There is no guarantee that we’re going to get filled, but if we
hit these entry points I like the play.  I want to see how the markets set up,
then I will e-mail out the recommendations to members.

Portfolio Strategy: Right now we’re slightly delta positive
and we’ll potentially look to add to our positive position.  Some of the new
trades I’m considering may switch the delta of our position intraday, but as I
mentioned above I think they are good percentage momentum trades.  

Daily Profit: $305

10500 April Mini Dow Put Options: We are short one put option.  Yesterday
this option closed at 340, down 10 points from the previous close of 350. 
Profit yesterday with this position was $50.

10000 April Mini Dow Put Options: On 3/16/04 we sold 2 mini Dow put

options for 137 points (each point is worth $5). On 3/24 we sold 2 mini

Dow put options for 151. Yesterday this option closed at 75, down 10 points from
the previous close of 85. We are short 4. Profit yesterday with this position
was $200.

10400 April Mini Dow Call Options: On 3/16/04 we sold 2 mini Dow call

options for 94 points (each point is worth $5).  Yesterday this option

closed at 45, down 5 points from the previous close at 50.  Profit yesterday
with this position was $50.

9700 April Mini Dow Put Options: On 3/24/04 we bought 2 9700 mini Dow put
options for 75. Yesterday they closed at 30, unchanged.  Loss on the day with
this position was $0.

Mini Dow Futures: On 3/25/04 we sold one mini Dow future at 10164.  The mini
Dow closed at 10179, down 1.  Profit on this trade was $5.  We are short one
mini Dow future.

Projected Net Maintenance Margin Required (Minimum amount required to trade
this position, may vary broker to broker.  Amount specified is

derived from our options analysis software):  $8,091

Current Projected Delta: 44.58

Current Projected Gamma: -49.64

Current Projected Theta: 325.90

About this trading method: Mark Melin trades by short selling options and
then directionally trading both futures and options inside this short options
position.