Retracement Is A Buying Opportunity

The market had an extremely strong day. The action started early in the
morning with pre-open futures leading the way higher.  This pushed the markets
to trade near the 10330 level, backing and filling for much of the morning. 
Then they rallied in the late morning and traded to the 10350 level for much
of the afternoon.  Then late in the afternoon the market caught a major bid
and just kept surging higher, squeezing the shorts into the close to end the
day just under 10400, up 148 points.   Yes for bulls this rally had everything
going…except volume.  Its interesting to note that such a major move in the
indices was propelled with only 1.3 billion traded on the NYSE. 

Like the Dow, the cash S+P had a rather orderly and stiff march higher.  The
broad-based index moved higher out of the gates, finding resistance near 1135
for much of the day.  Late in the day the S+P moved nicely higher, closing up
a strong 17.92 points on the day.  Perhaps most significant was the move in
the NASDAQ, the day’s best performer was up over 2%. The tech market cleared
the 2000 level and was led by bellwether Cisco Systems, which was up some 4%
on the day and was the most actively traded stock.   As we’ve said several
times, tech leadership is a good sign for market bulls — particularly when
tech leadership comes from bellwethers.

^next^

Prediction for Tuesday:  For Tuesday we could touch both
sides of the flat line, but the market will retain a positive bias.  For the
past week, we have been predicting higher price action.  While the market is
overbought on a daily basis, there is still no reason to change that long-term
view.  However, on Tuesday we might see a retracement – which could provide a
buying opportunity.  The question is, at what point will stocks find buyers? 

If we do get a move lower tomorrow, a first opportunity to buy on the S+P
might come at or just above the 1135 level.  If that breaks, we could see a
move to 1132, but I don’t see that as likely.  On the cash Dow, a pull-back to
10350 is likely and might provide a buying opportunity.  On the upside, 10400
should provide some pretty significant milestone – and in fact a move over
10400 might provide a trigger point for some buying. 

Portfolio Strategy:  Right now we are delta positive.  Yesterday we were
looking for a pullback to get additionally positive, and it just didn’t
appear.  Likewise, today we’re going to look for a pullback to get
additionally positive. 

Previous Day’s Results and Current Portfolio Status:  

Daily Profit: $158

 

10100 June Mini Dow Put Option:  We are short one put option.  Yesterday it
closed at 17, down 33.  Profit yesterday with this position was $168.

 

9700 June Mini Dow Put Options: On 5/24/04 we sold one put option for 70. 
Yesterday it closed at 5, down 5.  Profit yesterday with this position was
$25.

10600 June Mini Dow Call Option: We are short one call option.  Yesterday it
closed at 12, up 7.  Loss yesterday with this position was $35.

Mini Dow Futures: We came into the day flat the mini Dow future and remain
flat the mini Dow. 

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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.

DISCLAIMER:

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

time signals generated by The Dow Trader.  The results have not been

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.