Short-Term Overbought?

  • November 4, 2004
  • Mark Melin


Wednesday Recap: We had a great
day Wednesday with a profit of $250. Late Tuesday afternoon we got the portfolio
additionally delta positive, and on Wednesday the cash Dow started the day
significantly higher, then in a consolidating flag pattern moved lower for the
balance of the day, closing up some 101 points to end at 10137.

Has the Santa Claus rally started?  Below you see the exact chart we posted
close to a week ago with the addition of recent price action.  You’ll recall we
said that the recent trading action had the look of a reversal and that if the
S+P broke 50 on the RSI it was the start of a rally.  That in fact took place. 
The question is, where do we go from here?  Are we short term overbought?


Prediction for Wednesday:  On Wednesday I expect to see a
touch of both sides of the flat line.  On the downside I’m going to watch a
consolidation region from 10125-10100.  If this breaks we will watch the 10050
region, then again more significant support near 10,000.  On the upside I’ll
watch the 10140-50 level, then again the 10200 level and significant chart and
downtrend resistance currently located near 10250.  Overall I think we might be
a little overbought and most of the indices are running into the upper level of
their Bollinger band trading range.  This could slow the recent advance.


Portfolio Strategy:  Yesterday we didn’t have a quality
opportunity to establish the spread I was looking for.  Today we may try and
establish a put / call partial iron condor spread if the market shapes up
properly. 

Mark Melin