Wednesday’s Levels

  • July 14, 2004
  • Mark Melin

Technical Analysis and Trading Strategy
By Mark Melin, technical analyst

 Wednesday,
July 14

Tuesday Recap: We had a good day Tuesday with a profit of $170.

Charts from www.stockcharts.com

The
markets traded in a narrow range Monday, with the cash Dow moving from
a ceiling of near 10260 to a floor of the 50-day moving average near
10235.  The Dow ended the day at 10247, up 9 points on the day.  The
real action Monday occurred after the close, as Intel importantly
lowered profit forecast and reported a negative rise in inventories. 
The report sent Intel down significantly in after hours trading and
will likely negatively impact the markets today, including the
important Sox index.  Like the Dow, the Sox traded in a narrow range,
ending down only .76 on the day.  However, tomorrow could be the key,
as we’ll watch this index carefully to potentially provide clues to the
direction of the entire market.

Prediction for Wednesday: 
We’re headed lower.  The real question is, will support hold.  The
first index we’ll watch is the Sox.  If the Sox breaks support at the
435-432 level, it could take the entire market with it to the
downside.  On the cash Dow we will similarly watch the 10160-70 level. 



If
the market breaks, we’re going to turn to the S+P to look for a
potential support point at the 200-day moving average.  This could be a
point where buyers find the courage to take the market higher.  Now, if
support does hold, we could eventually see move back up to challenge
recent resistance, but I don’t think that is likely today. 

 
Portfolio Strategy:
Yesterday I didn’t like the price action on the Dow and in fact towards
the end of the trading day I was down on the Chicago Board Options
Exchange floor and I didn’t like the action in Intel.  Late yesterday I
issued an order that essentially moved the portfolio to delta neutral
from positive.  Right now we are neutral, and if we break support we
may get negative.  I may have an intraday trade.  Keep you eyes on the
e-mail.   
 
Previous Day’s Results and Current Portfolio Status:  

Daily Profit: $170

10200 August Mini Dow Put Options
Short 2, we sold two options 7/13/04 at 160
Yesterday it closed at 170.
Loss yesterday with this position was $100

9900 July Mini Dow Put Options
Long 4
Yesterday it closed at 4, down 1.  
Loss yesterday with this position was $20.

10300 July Mini Dow Put Options
Short 5.  Yesterday we bought back 5 at 88, now flat.
Yesterday sold at 88. 
Profit yesterday with this position was $300.

10600 July Mini Dow Call Options
Short 1
Yesterday it closed at 1, unchanged. 
Profit yesterday with this position was $0.

Mini Dow Futures
Short 1 Mini Dow future
Yesterday it closed at 10227, up 2. 
Loss yesterday with this position was $10.

For questions e-mail, subscriptions@dowoptionstrader.com

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.