Option Investor
Market Updates

Memorial Day Week.... up 14, down 3

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According to the Stock Trader's Almanac, the week following Memorial Day has found the markets up 14 weeks out of the last seventeen. The reason I bring this to trader's attention is also an observation that I've made over the years about the trading session just before a three day weekend. I haven't been as diligent with my notes as the Stock Trader's Almanac, but often times we get a lower market early in the day when the professional traders are still busy finishing some of their institutional client's orders, but they want to get out of the city early and often head for the exits at lunch time. That's when they turn things over to their "apprentice with the orders "just don't mess anything up and I'll see you Tuesday morning." What I look for at around 12:00 is for the broader market and specifically the NASDAQ to get a buy side influence as the less experienced trader simply begins filling retail customer orders and doing very little inventory management. The head trader took care of that before he/she left for the 3-day weekend. It's something to look for and perhaps take advantage of into today's close. Then perhaps build on into next week.

Stock futures mixed

S&P 500 futures are currently trading unchanged before today's opening of trading, NASDAQ futures are up 7 points and Dow futures are lower by 20 points. Fair value for the S&P 500 today is $2.32. That price will not change during the day. Computer programs are set for buying at $3.78 and set for selling at $0.86. If you'd like more information on fair value, who uses it and what it means, jump over to www.programtrading.com.

On the alert for Barrick Gold

PremierMarkets.com has profiled shares of Barrick Gold (NYSE:ABX) more than once in the past couple of months, and subscribers have even seen it appear in the PremierMarkets.com portfolio from time to time. The stock has treated subscribers favorably over the months and might be ready for a move higher once again. We've discussed the point and figure charts of both ABX and the Gold/Silver Index (XAU.X) the past couple of months. The current long-term bullish price objective for ABX is $25, so what I've done on the bar chart below is attach the top of the retracement bracket to $24.99 and the bottom to the 10/25/00 low of $12.31. This then gives us the retracement brackets we can trade off of for the next couple of months.

Barrick Gold (ABX) Chart - last seven months.

On May 21st, PremierMarkets.com dropped coverage of a bullish play in ABX when the stock traded $18.95. At that time, we felt the stock had gotten ahead of itself and thought it was a good idea to have subscribers take their profits off the table and wait for a pullback. Today we're going to be watching the stock closely and see what happens around the 38.2% retracement bracket. Look for PremierMarkets.com to get active in the hot box should the stock trade between $16 and $17. Traders that have played this stock from our profiled list can now take SOME of those gains and put it at risk in the options market. We're going to be targeting the July 17 calls (ABXGW), which are currently offered at $1.15. PremierMarkets.com is identifying this as a "lottery" play (willing to risk the entire price of the options) and we will be targeting the $20 level. Keep an eye on the hot list to see if we put this plan into action.

Jeff Bailey
Senior Market Technician

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