Tuesday’s Levels
Technical Analysis and Trading Strategy
By Mark Melin, technical analyst
 Tuesday,
June 15
Monday Recap: We had a good day
Monday with a profit of $215, as the market pretty much acted as we predicted.Â
Charts from www.stockcharts.com
In our prediction posted Monday morning and in
comments published Thursday afternoon, we said the markets would move lower
Monday. That occurred. Further, support at 10350 and 10300 was identified on
the Dow. In fact on Monday, the cash Dow started out gapping significantly
lower and testing 10350 support. The market then stair-stepped lower for the
balance of the day with an occasional rally, which featured tests and subsequent
failures at declining top resistance. At the end of the day, the Dow found
support just above 10300 and caught a bid late in the day to end at 10334, down
some 75 points on the day.
The NASDAQ had an interesting day, the biggest
percentage loser of the major indexes. It started gap lower and then moved down
rather quickly to test and break the 200-day moving average on an intraday
basis, before finding buyers and moving above that level at the close. Leading
the NAS lower was the SOX (semiconductor) index. The SOX has failed to hold
it’s 200-day moving average twice and can’t seem to get above trendline
resistance. If the SOX can move and hold above resistance, it bodes well for
the entire market. Likewise, if the NAS moves lower and can’t hold the 200-day
MA, that sends negative signals to the entire mareket. Watching the SOX is
important, because the SOX often leads the NAS and the NAS often leads the
markets.Â
Prediction for Tuesday:Â On the
upside for the cash Dow, we’ll watch 10350 and then more significant resistance
near 10400-30 level. If we clear and hold these levels, we could see price
movement up to the 10500-50 level. On the downside, we’ll keep an eye on the
50-day moving average currently new 10265. Other important levels we’ll keep an
eye on are the NAS and its 200 day moving average, as well as the S+P in the
1130-31 level on the upside.Â
Inflation Analysis: The CPI
report came out mixed. The headline number, at 0.06,  was higher than expected,
but the core was in line at 0.02. Overall, not as bad as many on the street
were looking for. The question still to be answered is: Will this report be
enough to propell the markets over 10430 resistance? I think not, but we’ll
have to wait and see.Â
Portfolio Strategy:Â Right now
we are delta negative.  If the Dow moves over and holds 10400 we’ll get
positive.
Previous Day’s Results and Current
Portfolio Status:Â Â
Daily Profit: $215
Â
10100 June Mini Dow Put Option: We are short one put option. Yesterday it
closed at 10, up 3. Loss yesterday with this position was $15.
Â
9700 June Mini Dow Put Options: On 5/24/04 we sold one put option for 70.Â
Yesterday it closed at 2, unchanged. Profit yesterday with this position was
$0.
10600 June Mini Dow Call Option: We are short one
call option. Yesterday it closed at 2, down 1. Profit yesterday with this
position was $5.
10600 July Mini Dow Call Options:Â On 6/10/04 we
sold 2 call options for 64. Yesterday it closed at 47, down 23. Profit
yesterday with this position was $230.Â
Mini Dow Futures: We are flat the mini Dow
futures.
Â
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.