THE OPTION CADDIE'S MARKET SUMMARY
T.J. Jolicoeur
Advantages In Options
Gold
Gold reaches 50% target discussed weeks ago! Gold has reached the 50% target the Option Caddie pointed out over 3 weeks ago. Now that it has reached the 355 level we would expect the next break below 350 to lead to
at least a sell-off to 340. Since we have rallied $30 in the last 6 weeks, a $15 retracement would be the next expected move. Take your pick, long-term December 320 puts for $500 to use as future O.I.L. position or a June 350 put for $300 that will move like a futures on a drop below the uptrend line? We previously added the August gold 320 put we bought for $900, (2) August gold 310 puts we sold for $450 each and the August gold 300 put we bought for $150 to create a $150 spread. This spread can make a maximum of $1,000 (options expiring with the market at 310). There is no risk past the premium to get in ($150) because the second 310 put you sell is covered by the 300 put you buy. Look to buy back the August 310 puts for $50 or better, locking in $800 profit. That will allow us to keep the August 320 put and have unlimited potential. Watch the silver market for clues as to whether this market breaks $360 or collapses. If you miss one, get in on
the other.
News Comments--COMEX June gold futures settled $2.30 higher at $352.50 per ounce Wednesday after continued weakness in the U.S. Dollar, a slight slip in the U.S. equity markets and heightened geopolitical concerns maintained speculative and consumer interest in gold. June had scaled fresh nine-week highs of $355.10 during the session on the good levels of buying seen, but late-session profit taking trimmed the earlier gains back to the $352-$353 region by settlement.
Once again pre-placed stop-loss buy orders played a major role in accessing the fresh highs. Stops were tripped around $351.50 and $353 on the way to the $355.10 highs. However, good levels of profit taking and book squaring poured in as prices approached the $355 level, ensuring that activity was two-way in nature and that volumes were brisk for the day.
Estimated volumes at 1300 ET (1700 GMT) were 36,000 contracts--up around 14,000 on Tuesday's level. With the U.S. Dollar expected to remain largely on the defensive over the coming weeks, and geopolitical tensions returning to the forefronts of speculators' minds in the wake of the bombings in Saudi Arabia, June gold is expected to remain well supported over the coming days with an eye on key resistance around $360. However, profit taking and book squaring are also expected to remain evident, so the price ascent may be more gradual than steep. Immediate resistance for June futures is seen at $355, then $357-$358 and $360. Support is seen around $349-$350 and then at the 100-day moving average around $347.30. Spot gold peaked at $355.60 during the busy session but then pulled back near the end of the New York trading day on profit taking by short-term dealers to end the session just shy of the $350 mark. As in gold futures, the weak
dollar and geopolitical concerns are expected to remain supportive going forward, with key upside resistance viewed at $360.
Silver
Silver continues to mimic gold moves, watch both for clues! Silver has also reached an important chart level. Historically the $5 barrier has proven to be solid support when the market gets above $5 and solid resistance when the market is below $5. With 2 other spikes at 499 and 500 in January and February, the potential for another attempt and failure is fairly high.
The January spike resulted in a 26-cent drop and February sold-off a whopping 50 cents in 8 days! I am watching the July 480 put for a possible purchase on a break lower. There is an uptrend line near 465 (and rising) that will provide support and the 471 low from earlier this month will also help bulls. Watch the gold market for clues as to whether this market
breaks $5 or collapses. If you miss one, get in on the other.
News Comments--July silver was 4.7 cents higher at $4.872 in sympathy with gold. Significantly, July lacked the legs to repeat the recent high of $4.91 scored Monday. Dealers said the $4.90-$4.91 area is expected to hold firm as resistance over the near term until gold closely inspects or even overcomes the resistance in place at $360. Support for July silver is
seen around $4.81-$4.82.
Stock Market
The stock market has moved up above the recent tops at 930 and 938. While we haven't seem it break out in a flurry, we haven't seen it reverse sharply lower either. The triple top of 962.30, 938 and 930 has now been joined by today's high at 948. The weekly chart also shows solid resistance. A break below the up trendline near 935 should accelerate the selling.
With option expiration this week we may see additional swings. Previously we bought the May 900 put, sold (2) 880 puts and bought an 860 put for $600. Exit the 900 put at the open. No new positions are recommended at this time.
May 16, 2003
T.J. Jolicoeur, The Option Caddie
Advantages In Options
109 Via Promesa, Paso Robles, California
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