Monday’s Levels
Technical Analysis and Trading Strategy
By Mark Melin, technical analyst
Weekend Report, July 19
Friday Recap: We had a fantastic
week last week last week with a profit of $765.
Charts from
www.stockcharts.com
Friday started with a gap higher, just breaking
above the 50-day moving average near 10223 on the cash Dow. However, that’s
about as good as it got. The cash Dow then moved down to fill the gap and
tested support near the 10160 level we had previously identified. From here a
bounce back rally attempt failed near the 200-day moving average and the market
went sideways in a bear-flag pattern. Then in the late afternoon the market
fell hard and fast, breaking support to end the day near 10140.Â
You will recall the prediction for Friday morning
we said that if the market breaks down we could touch the 200-day moving average
on the S+P with a potential stop run and move past that level. That’s pretty
much what happened, as the S+P moved past the 200-day moving average to close at
1101.39. Above you can see the exact chart we posted Friday morning.
Prediction for Monday: I think
we attempt a move higher on Monday, working off a near-term oversold condition.Â
On the cash Dow we’ll first watch resistance near 10160, then at the 200-day MA
near 10200 and then again near the 50-day MA, which currently resides near
10223. If we can’t hold higher levels, we might then move lower to test some
longer term support on the indexes.Â
At this point I think it is important to take a
longer term view of the markets to understand the forces at play. In the S+P,
you’ll recall that we have identified 1153-55 as important resistance. Not only
was that point important daily chart resistance, but you will also note that it
was also an important Fib number. If the markets continue to break down, we
could see support appear near the 38% Fib retracement level near 1065.
Potentially before the S+P reaches its Fib
support, the cash Dow could test Fib support near the 10,050 level. Â
Portfolio Strategy:Â Right now
we are close to delta neutral with a slight positive bias.  We’re likely to
remain close to neutral until a trend emerges. On July 14 we established a
small position in the August options, selling two 103 near the money puts. We
offset this position by selling one Sept. mini-Dow future to create a delta
neutral position. We will likely hold this options position until close to the
point they expire, which is August 20. Further, we are likely to add to our
options position once we see a clear trend or potentially near the start of
August.
Previous Day’s Results and Current
Portfolio Status:Â Â
Daily Profit: $45, weekly profit $765
10200 August Mini Dow Put Options
Short 2
Yesterday it closed at 190, down 12.
Loss yesterday with this position was $120
9900 July Mini Dow Put Options
Long 4
Yesterday it closed it expired worthless, down 2. Â
Loss yesterday with this position was $40.
We are no longer in this position.
10600 July Mini Dow Call Options
Short 1
Yesterday it expired worthless, down 1.Â
Profit yesterday with this position was $5.
We are no longer in this position.
Mini Dow Futures
Short 1 Mini Dow future
Yesterday it closed at 10137, up 7.Â
Loss yesterday with this position was $35.
For questions e-mail,
subscriptions@dowoptionstrader.com
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.