Summary for Week Ending 22nd February 2003

Nothing special happened this week as there were no bombshells of either the Financial or the Military flavor and this was reflected in market behavior. All three were considerable quiet with the spurt on Tuesday following the long weekend, the only firework to spark any interest. More on this later.

Looking at the week in review... Monday was a holiday, and Tuesday displayed a good jump forward following on from the bullishness of the previous Thursday and Friday. Last week I was saying that should the previous pattern continue, then Tuesday should be down. Obviously it wasn't, and so it is a pointer that perhaps the counter trend rally would extend further. Wednesday was an inside day and not all together unexpected with the wide range up day we had on Tuesday. Thursday and Friday were down days on the chart, although it is also important to look at the closing prices for the week. At best the market was bouncing around a 100-150 point range and there was little or no conviction in any of the movements after Tuesdays rally.

Updating my position with the Mar DJX Puts, I exited these near the close on Thursday for a minor loss. My reasons for exit are as follows. Generally I like to trade Options with a 5 - 10 day window. Coming into Thursday, I was already in fro three weeks and the time premium is starting to eat away voraciously. Should the trend be still in place, then following the Rise on Tuesday, a further larger rise was a low probability. This was confirmed by the inside day on Wednesday. If Thursday was to e down, then I would expect it to b down hard, if the previous two days had exhausted the buying interest. This was not the case as the market, although slipping, still held its ground fairly well. To my mind this was a danger signal that perhaps we might get a higher swing low in this counter trend rally and with time ( option premium) not on my side, discretion appeared to be the best avenue. As I mentioned last week, I had an opportunity to exit part of my position but was unable to take advantage of this. The small loss (10%) I took this week, is simply further motivation that that situation is not repeated.

I still believe that the overall trend is down, and that short term Put trades have the better probability profile. and as such I will be looking for another opportunity on the short side.

Looking ahead at the coming week, I am expecting some carry over on the upside from Fridays close. I noticed that the reason offered for the rise was Option expiry related. This is the same reason that is given for when it declines on Option expiry day, so as a news byte it is pure noise. Should we get further rises then the price area of 30th Dec low comes into play as a point of resistance. Another possibility is that the decline will 'roll out' and that the current rally will extend the distance of the previous. This is about 680 points on the DJIA (see chart). The previous rally ran for 13-14 days, and adding this to the 13th Feb. low gives us the Feb. 27th as a termination point. In it current shape it can go either way, but I would expect that movement early on in the week, may provide a better indicator to how this is to play out.

DJIA See Chart

S&P 500 See Chart

NASDAQ See Chart