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 Issue No. 3

August 7, 2005

Market Commentary:

In my weekly commentary for the previous week I had said the following:

"All the indicators have formed patterns that are identical  to the ones we observed in early and mid-June which resulted in the current rally. Therefore, it is quite possible  that we will get a similar bullish outcome the second time around. However, these types of patterns tend to be a bit reliable the first time they occur, because the second time everybody is aware of them expecting the same results, and that is when the markets get "cute" and  decide to fool the majority by doing exactly the opposite thing!  In any case, given where we are at this point we must seriously consider both outcomes. Either the market is consolidating in a bullish manner like it did previously, or, it is building a top of significance and instead of a bullish resolution we'll get a break-down. If the SP can stay above 1230-1220 over the next 5 trading days, the odds  favoring a bullish resolution that will take the SP up to the 1280-1290 zone, will increase dramatically (see scenario#1 directly below) On the other hand, if the SP closes below 1220 for two consecutive days sometime over the next 5-7 trading days, the  odds  favoring a bearish resolution that will take the SP down to the 1200 zone, will increase dramatically (see scenario#2 directly below) Furthermore, a close below 1200 can result in a full scale retreat back down to channel support in the 1170-1165 zone (see scenario#3 directly below)"

Given last week's price action it appears highly likely that scenario #2 may be underway. However, we do not have a close below 1220 yet, and thus, it is not fully warranted to get "all beared up" as of yet. Therefore, we will initiate two new trades (GOOG, CME) that have a negative bias, but also, they are designed to provide protection, in the event that we get a reversal to the upside.

Trade #1

(FOLLOW UP FROM PREVIOUS ISSUE)

Index: Phil. Gold/Silver. Symbol:  XAU

Suggested Trade: Long: Aug. 95 calls/Aug. 90 puts

Special Conditions/Other: YES

Previous Comments:

The XAU is  stuck between support and resistance at 91.75, and 95.5 respectively. A break from either, should result  to a 7-10 point move. The odds  favoring  either event are almost even, thus, we want a position that will get us "in"  when the move takes place.

Trading Strategy:

We will buy to open 4 of the Aug. 95 calls (symbol: XAUHS) and we will buy to open 4 of the Aug. 90 puts (symbol: XAUTR)  On a close above 96 we will exit the puts, and add 2 additional calls. On a close below 89, we will exit the calls, and we will add 2 additional puts.

Current Comments:

 Notice that a) the XAU broke above resistance, and then it came down and tested it successfully, and b) the  statistical volatility of the XAU over a 6 week period  is 23.5%, yet, the actual volatility of the previous 6 weeks has been 4%. When volatility shrinks by a factor of 5 or greater, usually we get a move between 8%-14%. Therefore, I am inclined to believe that -unless the break out was a fake out and a bull trap- we will see an advance up to the 102-104 zone. Consequently, on a close above 96 we will add 4 of the Aug95 calls, instead of 2, and on a print above 98, we will add 4 more.

Please note: The recommended minimum starting capital is $50,000.00.

Trade #2

Company: Google Inc. Symbol:  GOOG

Suggested Trade: Long: Aug300 calls/Aug290 calls/Aug300 puts

Special Conditions/Other: NO

Comments:

GOOG appears to have formed a "head and shoulders" top, and it is in the process of completing the right shoulder. If that turns out to be the case, we ought to see a decline down to the 250 level. However, a close above 300 would negate this scenario, and that is the reason why we are hedging our bets here with the 300, and 290 calls.

Trading Strategy:

We will buy to open 2 of the Aug290 calls (symbol: GGDHR) 2 of the Aug300 calls (symbol: GGDHT) and we will buy to open 4 of the Aug300 puts (symbol: GGDTT) 

P/L Analysis Powered By OptionVue:

Please note: The recommended minimum starting capital is $50,000.00.

Trade #3

Company: Chicago Mercantile Exchange: CME

Suggested Trade: Long: Aug300 calls/Aug290 calls/Aug300 puts

Special Conditions/Other: NO

Comments:

CME  appears to have formed a triple top. If that turns out to be the case, we ought to see a decline down to the 275 level. However, a close above 305 would negate this scenario, and that is the reason why we are hedging our bets here with the 300, and 290 calls.

Trading Strategy:

We will buy to open 2 of the Aug290 calls (symbol: CMJHU) 2 of the Aug300 calls (symbol: CMJHV) and we will buy to open 4 of the Aug300 puts (symbol: CMJTV) 

P/L Analysis Powered By OptionVue:

Please note: The recommended minimum starting capital is $50,000.00.