Where Are The Indices Headed From Here?

  • August 25, 2004
  • Mark Melin

Tuesday Recap:
You will
recall we started to suggest oil might be headed lower in price several days
ago.  Oil continued to slide Wednesday, moving down to test initial support near
the 20-day exponential moving average and the RSI is approaching potential
support near 50.  The question is, will this support hold?  The MACD and several
other indicators are suggesting a sell configuration, and I tend to think over
the longer-term we could see the monster terrorism premium taken out of oil,
with the black gold potentially moving down to test support near the B region in
the chart we have identified below.  This of course assumes that we don’t see a
major terrorist event during the Republican National Convention.


While Oil
moved lower, stocks remained mixed on Wednesday.  For its part the Dow was up on
the day, having tested both previously identified support and resistance.  While
the Dow was up, the NASDAQ was down, reversing yesterday’s price action. 


I’ve
posted the exact NASDAQ chart we posted Tuesday, August 17.  As you can see, we
expected the NASDAQ to fill its gap, which it did, we were looking for the tech
leader to test 50 on the RSI, which it did, and we were watching the MACD to
fire a buy signal, which it did.  So the question is, where are the major
indices headed from here? 

^next^



Prediction for Wednesday:  We could touch both sides of the flat line on
Wednesday.  Ultimately I am looking for a potential test of the 10200 level on
the cash Dow.  However, you will recall in previous predictions that we put a
time cap of sorts on this rally, and that time cap expires today.  It could be
argued that the cash Dow, having touched its 50-day moving average, has hit a
near term top and may be due for a re-test of significant support.  On the
downside, we’ll watch for a potential test of the 20-day EMA, and then again
support near the 10,000 level.  If we do get some legs to the upside, we’ll keep
an eye on the 10200 and 10250 level.  A break of this level could lead to
significantly higher prices, but I don’t expect that to happen in the next 5
days.  On the upside for the NASDAQ, we’ll watch the May lows near 1878, then
again more significant resistance at 1900. 

 


Portfolio
Strategy:  If the market bounces today we might hedge the account a little delta
negative.

Previous Day’s
Results and Current Portfolio Status:  

Daily Loss: $50

10100 Sept. Mini Dow Call
Options

Long 5.

Yesterday these options closed at 131, up 6. 

Profit yesterday on this position was $150.

These options expire September 17.

 

10300 Sept. Mini Dow Call
Options

Short 8. 

Yesterday these options closed at 45, up 5. 

Profit yesterday with this position was $200.

These options expire September 17.

 Charts from www.stockcharts.com

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.

DISCLAIMER:

Past performance is not necessarily indicative of future results.

There is a substantial risk of loss in commodity futures and options

trading. It is not suitable for all investors.  Only you can determine

whether this trading suits your particular needs and risk tolerance.

All profit and loss representations are hypothetical and based on the real

time signals generated by The Dow Trader.  The results have not been

adjusted to reflect slippage or commission charges.  No representation is

being made that any account will or is likely to achieve profits or losses

similar to those shown.

Â