Thursday’s Levels

  • July 1, 2004
  • Mark Melin

Wednesday Recap: We had a good
day Wednesday with a profit of $390. 

                        
Charts from www.stockcharts.com

The Fed announced “the most advertised” interest
rate decision in history with an anticipated ¼ point rate hike and more
importantly maintained the “measured” language on which traders were focused. 
The most interesting market to watch – and the one that could have the most
impact on stocks – is the interest rate market.  The rate announcement reassured
bond traders as prices rose and yields fell on the 10 year note, with yields
tumbling to the lowest level in a month and moving below its 50-day moving
average for the first time since rates started to rise in early April.  The
10-year note is testing important support and talk on the trading floors in
Chicago is that this level could be broken.  It’s also interesting to note that
big money insiders such as Pimco and other major bond houses made big time bond
purchases in advance of the Fed announcement – anticipating lower rates in the
future. 

In terms of stocks, when the announcement came
out the Dow stalled for a few minutes – providing a buying opportunity – and
then quickly moved to test and ultimately break 10430, moved to 10470 before
settling at 10435, up 22 on the day. 

But the place to be this past week was the tech
sector.  As you might expect in an imporving  market environment such as this,
tech stocks substantially outperformed the general market on Wednesday – as they
have done all week.  In fact, the NASDAQ 100 broke above its three month peak. 
This is a significant technical development and this boat could lift all market
boats higher.  A move above 1524 in the NAS 100 would clearly indicate the
summer rally is in full swing. 

^next^

Prediction for Thursday:  While
we might touch both sides of the flat line on Thursday, I think we’re going to
rally into the end of the week – as we predicted on Friday and even as we
predicted on Monday after the market sold off.  This market movement could be
the start of the big summer rally.  On the Dow we’re going to watch for a test
of the 10500-50.  If this clears, we could see a run at 10600.  If we do get a
sell-off we’ll keep an eye on the10430 level, which could break, then again the
10400 level.  If this breaks we could see a move to the 10350-70 level, with
significant support at the 20-day EMA currently located at 10356.  On the NAS
100, keep an eye on 1524.  If this level breaks, we could see significant buying
across all markets. 

It’s going to be interesting to watch
volatility.  The VIX is trading at some extremely low historical levels.  When
the VIX starts to rise in a larger percentage than the S+P is falling, watch out
because that will provide a major sell signal to this market. 

 

Portfolio Strategy:  We’re going
to stay positive and in fact we may attempt to buy back one of our 10600 call
options. 

    

Previous Day’s Results and Current Portfolio Status:  

Daily Profit: $390

9900 July Mini Dow Put Options

Long 4

Yesterday it closed at 11, down 4. 

Loss yesterday with this position was $80.

10300 July Mini Dow Put Options

Short 5. 

Yesterday it closed at 57, down 18. 

Loss yesterday with this position was $450.

10600 July Mini Dow Call Options

Short 2

Yesterday it closed at 30, down 2. 

Profit yesterday with this position was $20. 

Mini Dow Futures

We are now 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. 

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