Thursday’s Levels

Perhaps most significant Wednesday was the fact the S+P and
Dow held support.  You will recall from yesterday’s report we said if the S+P
held 1125 and the Dow held 10350 we would remain positive on the market.  That
occurred.  Further, the broad markets actually had a very good day.

If you judge this market by the major indices — Dow, S+P
and NAS — you would logically conclude that the market had a bad day.  However,
the advance/decline line told the real story of the market.  On the big board
advancers pounded decliners 20 to 12.

Prediction:  I expect to see strength moving
into Thursday and earnings season.  The fact that we haven’t seen many
pre-announcements is a good sign for market bulls.  Further, the first trading
day of April the Dow has been up 9 of the last 12 times.  I attribute this to
the start of earnings season.  However, the wild card is Friday’s unemployment
number. 

Unemployment analysis: As long time members will note, I’ve
held the view that we’re in a different economy — the “perfect storm” economy
where high economic growth and activity can be sustained with relatively low
inflation and employment growth.  As such, at every unemployment report for the
past four months I’ve predicted fewer than expected job creation numbers.  For a
while that was actually good for market bulls, because it kept interest rates
near all time lows.  And that’s the paradox the markets will face.  If the
number comes in better than expected, with higher than expected job creation,
then it will damage the interest rate environment.  I think the perfect scenario
for bulls is job growth to come in close to expectations.  This way the interest
rate environment will remain stable and there will be some evidence of economic
growth.  While I don’t like playing the numbers, I’m expecting job creation
numbers a little better than the recent anemic past.   

On the upside for the cash Dow, we’ll watch the 10380
level, then again more significant resistance near 10400.  A break above this
level would indicate a move to the 50 day moving average, currently near 10470. 
On the downside, we’ll watch the 10325 level with more significant support
around the 20 day EMA and chart support near 10300.  If this is broken, we might
turn neutral to negative on the market. 

Portfolio Strategy: Right now we are significantly delta
positive.  Towards the end of the day we will likely get a little closer to
delta neutral going into the unemployment report due out Friday. 

Daily Loss: $70

10500 April Mini Dow Put Options: We are short one put
option. Yesterday this option closed at 192, up 2 points from the previous close
(each point is worth $5). Loss yesterday with this position was $10.

10000 April Mini Dow Put Options: We are short four put
options. Yesterday this option closed at 30, unchanged. Profit yesterday with
this position was $0.

10400 April Mini Dow Call Options: We are short two call
options. Yesterday this option closed at 90, unchanged from the previous close.
Loss yesterday with this position was $0.

9700 April Mini Dow Put Options: On 3/24/04 we bought 2
9700 mini Dow put options for 75. Yesterday they closed at 12, up 2. Profit on
the day with this position was $10.

Mini Dow Futures: We are long two mini Dow futures.  The
Dow future closed at 10350, down 7. Loss yesterday on this position was $70. We
remain long two mini Dow future.