Wednesday’s Levels
Technical Analysis and Trading Strategy
By Mark Melin, technical analyst
Wednesday,
July 7
Tuesday Recap: Bears once again
ruled the street as scared bulls ran for cover early in the morning when the
pre-open futures started the day lower. The cash Dow began the day to the
downside by breaking its 50-day moving average within the first half hour of
trading, then bounced, making an attempt to move to the upside. When buyers
evaporated, the market sold off sharply around 11:00 EST and getting near the
lows of the day around 12:00 PM, breaking trendline and moving average support.Â
The market then found support near the 10200 level – 30 points above its 200-day
moving average – and bounced into the close, making an unsuccessful attempt to
reclaim the 50-day moving before ending the day at 10,219, down some 63 points
on the day.Â
Charts from
www.stockcharts.com
A market leader to the downside was the
semi-conductor index, lead by software maker Veritas. The SOX lead the NASDAQ
higher when the market was in rally mode, but now it is taking the market lower
as well – and its doing so on heavy volume. As the SOX moves to test its 2004
lows, we’ll watch carefully. A break of this level wouldn’t be good for the
market in general.Â
From the high after Wednesday’s Fed announcement,
the Nasdaq 100 has swiftly lost 83 points, dropping from about 1525 down to 1442
– a straight, sharp roll-over with very little participation from buyers at any
point. However, the Nasdaq 100 found support at its 200-day MA, which might be
a rally point early in the morning tomorrow. Unlike the Nasdaq 100, the
broader-based Nasdaq composite broke both 50-day and 200-day moving average
support.Â
Prediction for Tomorrow:Â The
markets are pretty oversold and due for a bounce. On the cash Dow, let’s watch
for a move to the 10250 level. If we can break and hold that level, it might
indicate bulls might have found some courage. If 10250 does not break, watch
for a re-test of the 10200 level – which could be broken – and then more
important support near the 200-day moving average, currently near 10170.Â
On the S+P, let’s watch for a potential test of
the 1119-1120 level. If we can clear and hold this level, it could indicate
bulls have found courage — if we get good upside participation from the tech
sector.
Portfolio Strategy: I didn’t
sell a future last night because I wanted to wait for a potential oversold
bounce today. We are likely to sell once the market reaches the 10250 level,
which would get us closer to neutral. If the markets in general move above
moving average support, we might remain a little positive.Â
Previous Day’s Results and Current
Portfolio Status:Â Â
Daily Loss: $299
9900 July Mini Dow Put Options
Long 4
Yesterday it closed at 20, up 3.Â
Profit yesterday with this position was $60.
10300 July Mini Dow Put Options
Short 5.Â
Yesterday it closed at 145, up 30.Â
Loss yesterday with this position was $750.
10600 July Mini Dow Call Options
Short 1
Yesterday it closed at 2, down 5.Â
Profit yesterday with this position was $25.
Mini Dow Futures
Short 1 Sept mini Dow future
Yesterday it closed at 10203, down 71.Â
Profit yesterday with this position was $366
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.