Tuesday’s Levels
Technical Analysis and Trading Strategy
By Mark Melin, technical analyst
Tuesday,
June 22
Monday Recap: The cash Dow
started the morning testing resistance near 10430, and when it couldn’t break
that resistance it moved lower to drift inside the recent resistance zone that
started from 10400 and moved to 10430. Then late in the day the cash Dow broke
out of its range to head lower, breaking beneath rising trend line support and
moving into a steep afternoon sell-off, brining the market’s measure to close at
10371, down some 45 points on the day. Volume was light, with 1.1 billion
traded on the NYSE with decliners edging out advancers only 17 to 15.
Charts from
www.stockcharts.com
Interestingly, the NASDAQ tested moving average
support Monday and was down over 12 points on day – the biggest loser of all the
major indexes. However, within the NASDAQ the semi’s held up relatively well,
with the SOX index down only 2 – a good sign for market bulls.Â
Prediction for Tuesday:Â I
expect the markets to find support and test higher levels on Tuesday. On the
cash Dow we’ll once again watch that 10400 – 10430 level. If the Dow can punch
through and hold this level it could propel all markets higher – and move to the
next stop on the bull train, near 10500-50. If we can’t find support, watch for
a move lower into both moving average support and chart support in the
10300-10250 region. If 10350 breaks and holds, I’ll start to question my bull
outlook, but if the 10250 support region breaks, I’ll definitely change my
position. A break of this level would also likely coincide with a break of
important moving average support on the NASDAQ and 1127 and 1122 support on the
S+P.Â
Portfolio Strategy:Â Yesterday
we moved the portfolio to delta positive. We’re likely to remain positive
unless the market gives us reason to think otherwise.Â
Previous Day’s Results and Current
Portfolio Status:Â Â
Daily Profit: $25
9900 July Mini Dow Put Options:Â On 6/18/04 we
purchased 4 July put options for 32. Yesterday it closed at 30, down 2. Loss
yesterday with this position was $10.
10300 July Mini Dow Put Options:Â On 6/21/04 we
sold 1 put option for 88. Yesterday it closed at 110, up 5. Loss yesterday
with this position was $220. We are now short 5 put options.
10600 July Mini Dow Call Options:Â On 6/10/04 we
sold 2 call options for 64. Yesterday it closed at 30, down 20. Profit
yesterday with this position was $200.Â
Mini Dow Futures: We came into the day short one
mini Dow future. We bought the mini Dow back at 10388, down 11 from yesterday’s
close. Profit yesterday with this position was $55. We are flat the mini Dow.
Estimated margin requirement (may vary broker to
broker): $7,824
Delta: 77.78
Gamma: -68.92
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.