Wednesday’s Levels
Tuesday Recap: In our prediction
for Tuesday, we said that the markets would move higher and that our next long
term goal for the market would be for the NASDAQ to test its 200-day moving
average. Further, on the NASDAQ we predicted that the downside gap that was
created would likely be filled with some upside price action on Tuesday. This
all occurred yesterday. I posted yesterday’s prediction chart with the addition
of today’s price action. You can see that the gap (A) that was created was
filled and that our longer-term target (C) is clearly in view.Â
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Charts from www.stockcharts.comÂ
I’ve also posted yesterday’s prediction chart
with the addition of Tuesday’s price action below. You can see that the market
moved higher and used 9930 as a support level early in the morning, then powered
up to the resistance line we had predicted near 9985./Â Overall, this looks like
good basing action. As you can see, our short-term target for the cash Dow (C)
is calling.Â
A few recent developments in the news are worth
noting.   You’ll recall that for the past two months we have been saying
inflation was here and that members should get used to that idea. Further, we
predicted that a spike in gas and other consumable commodities would have an
impact on middle America’s spending habits, and in one of our reports from a few
weeks ago we noted that Dow components Wal Mart and Home Depot were trading
under their 200-day moving averages as a likely reaction to this. Since then,
two interesting developments. First Wal Mart announced that higher gas prices
have impacted their customer’s spending habits, negatively impacting sales.Â
Second, the Fed is starting to get concerned about inflation. Yesterday the
president of the Richmond Fed noted that the Fed was concerned about core
inflation. This news item was essentially given page 2 treatment, but it is a
major shift. This is consistent with how the Fed communicates to the market
subtle changes. Rather than make headlines, they let a little nugget of
information leak out from a secondary Fed official so that the markets are given
little hints as to future Fed actions. Hint received and noted.
^next^
Prediction for Wednesday:Â The
market is likely to move higher Wednesday and test some key resistance levels.Â
On the cash Dow we’re going to first watch for a test of the 200-day MA, which
will likely be broken. Then we’ll watch for a test of the 10050 level. This has
been broken in the past, but it never held for more than 5-10 minutes. If this
breaks and holds, we could then move to light chart resistance near 10170 and
also the 20-day EMA, which will reside in that area during a likely test of
10170. If that clears we could move to the 10250 resistance level, where the
cash Dow’s 50-day MA is going to reside. Sometime during tests of these levels
the NASDAQ could also be testing its 200-day MA. When all this happens, it
might be a good time to sell.
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Portfolio Status:Â We came into
today slightly delta positive. We’re likely to get additionally positive and
buy back the future we are currently short today. Â
Yesterday’s Results and Current Portfolio Status:Â Â
Daily Profit: $105
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10100 June Mini Dow Put Option: We are short 2 put options. Yesterday it closed
at 262, down 33. Profit yesterday with this position was $330.
 
10600 May Mini Dow Call Options: We are short 2 put options. Yesterday this
option settled at 1, unchanged. Profit yesterday with this position was $0.Â
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10600 June Mini Dow Call Option: We are short two call options. Yesterday it
closed at 11, up 1. Loss yesterday with this position was $10.
Mini Dow Futures: We came into the day short one mini Dow future. Yesterday it
settled at 9957, up 43. Loss yesterday on this position was $215. We are short
one mini-Dow.Â
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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.
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