Wednesday’s Levels

  • May 5, 2004
  • Mark Melin

Tuesday Recap: We had a good day
Tuesday with a profit of $455.

In our prediction for Tuesday we said: “I think
there is a chance the (Fed) statement could surprise with language relatively
tame when compared to expectations.  If this occurs it could propel the markets
to move into higher levels.”   In fact on Tuesday, the Fed released it’s
statement and it was absolutely as tame as it could have been given the
environment, as the Fed essentially said “We’re in a process to raise rates,
this is going to be an orderly process and we’re not going to make any hasty
decisions.”  Once the markets translated the Fed’s Martian-like language into
the King’s English it reacted positively to the news, shooting higher with the
exuberance of a kid in a candy store on a sugar high.  The problem with sugar
highs is they wear off rather quickly, and the market eventually came to the
realization that there are still several serious issues with which to contend.

For most of the morning before the Fed
announcement the cash Dow traded in a range from 10330 resistance to 10260. 
Those numbers could be important to watch on Wednesday (more on this in today’s
prediction.  On the day the Dow was up a paltry three points, the S&P two, and
the Nasdaq 100 was up close to seven points.  Interestingly, the SOX Index
snapped back off its lows to close up 7.44, but still about 6 points off the
high.  

^next^

Prediction for Wednesday: We
could touch both sides of the flat line today with a potential downside bias. 
Essentially, the picture from yesterday — and yesterday’s technical notes —
still apply.  On the upside for the cash Dow, we’ll first watch the 10330
level.  A move past this could indicate a potential test of moving average
resistance near 10366 and more significantly 10383.  If these are broken, watch
for a test of 10400 chart resistance.  A move and hold past this level would
potentially change our short-term outlook on the markets.  However, I don’t
think that is going to happen.  On the downside, watch soft support near 10300
and then more significant support near 10220-50.  If this is taken out, we could
be headed significantly lower. 

Portfolio Strategy:  Right now
we are delta negative.  I’m going to watch today’s set up and may have a trade
to get a little more negative if the market can’t break resistance.

Yesterday’s Results and Current Portfolio
Status:  

Daily Profit: $455

 

10100 May Mini Dow Put Options: We are short 2 put options.  Yesterday this
option settled at 60, down 2.  Profit yesterday with this position was $20. 

 

10100 June Mini Dow Put Option: We are short 2 put options.  Yesterday it closed
at 142, down 5.  Profit yesterday with this position was $50.

 

10600 May Mini Dow Call Options: We are short 2 put options.  Yesterday this
option settled at 15, down 5.  Profit yesterday with this position was $50. 

 

10600 June Mini Dow Call Option: We are short two call options.  Yesterday it
closed at 70, down 13.  Profit yesterday with this position was $130.

Mini Dow Futures: We came into the day short two mini Dow futures.  We bought
one mini Dow future at 10265.  Yesterday it settled at 10278, down 14.  Profit
yesterday on this position was $205.  We are now long one mini Dow. 

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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