Optnqueen Newsletter for May 5, 2008
The market–a discounting mechanism, is telling us that all will be well in six months or so. We all know the slogan sell in May and go away, which would work well with the recent action of the market. If we sold now, and returned in say November, we might avoid the “summer doldrums” and any unforeseen blow-up that might occur between now and November. We will also avoid all the political stuff, returning at a time when this is over or nearly over. We also would avoid the tax selling season for mutual funds that end on Halloween. We caution our readers not to travel outside our borders because our buck will make you feel poor when converted to another’s currency.
Meanwhile as we stated months ago, manufacturing is returning to our shores and firms are finding that our labor force is efficient and cheap. Think about that, we are now a cheap labor country! This is a benefit of the weak US Dollar. Before you go out and celebrate, the US Dollar is showing strength, not a lot, but enough to begin to tip the new manufacturing benefit of a weak dollar, that has been found.
As to the S&P 500 we have been witnessing a stair-stepping rally which has taken the market within reach of the 200 day moving average. We are severely overbought and look as though we will remove some of the upside excesses, as this no-volume rally peters out. We have seen the transportation index surge which, gives the bulls some support and confirms a “Dow Theory” buy-signal.
The good news is that the sub-prime mess is disclosed and in the market, the bad news is that defaults on credit cards, car loans, and commercial loans haven’t been thought about. If the consumer is cutting back in order to feed and care for the family, how much is left to pay down the mountain of debt that this consumer is swimming in. Will you pay your mortgage or the car loan, credit card bill or even medical bills? We believe that the consumer will opt to pay for a roof overhead before much else, and the other debts will take a number according to need and survival of the family—or will they walk away? Thus, all bills that are outstanding will be in danger of default, which includes the extra car, the vacation, the medical bills but not the drug bills. Food will remain current and other necessities of life will remain current.
We would advise our readership to look into small banks and community based and local credit unions that lend to the community and have a handle on their loan portfolio. Those banks in general, are banks that did not accept “no doc” or “sub-prime” loans and always have insisted on money down on the loan. The old fashioned banker down the street, the guy or gal that has been the “home town” banker that your parents used, this is the stock you might want to buy.
Monday: The ISM non-manufacturing index for April is released at 10:00 and Fed Chairman Bernanke speaks in the evening.
Tuesday: The Reserve Bank of Australia releases its interest rate decision and Kansas City Fed President Hoenig speaks.
Wednesday: non-farm productivity for the first quarter is released at 8:30 and March consumer credit is released at 3:00.
Thursday: The Bank of England releases its interest rate decision, the European Central Bank releases its interest rate decision, April chain store sales are released and wholesale inventories for March are released at 10:00.
Friday: International trade for March is released at 8:30.
The US Dollar Index rallied in the Friday session to complete the week on an up note. The market rallied almost to the lip of a gap on the chart at 73.95, printing 73.90 as the high of the day (this gap is not evident on the electronic chart). The gap is 74.35 to 73.95 and was left on the chart on February 27th and 28th. Yes, we know about the print of 74.50 seen on April 18th and view this as an outlier without relevance. That trade was accomplished with the sweep feature on the ICE platform which took all the offers that were on the screen and available at the time of its initiation. The print of 74.50 was allowed as it was a valid trade. However, when viewing the chart it is, a fantasy print, at best. To be just, the same sort of print has occurred on the downside however the prints were not so obviously out of the range of the day as to cause any major blip in the chart. The low of April 22nd is such a blip, again created with the sweep feature on the electronic platform. We have signs of exhaustion in the daily chart of the US Dollar index. The DeMark Expert indicator has curled over and is issuing a sell-signal. The stochastic indicator, our own indicator and the RSI continue to point to higher levels as they approach overbought levels. The 5-period moving average is at 73.16. The top of the Bollinger band is at 73.57 and the lower edge is seen at 71.32. Notice that we closed above the upper Bollinger band. As you know, we can not stay there for very long and expect to see the market retreat from these levels as the Bollinger band expands reflecting increased volatility in this index. We further observe that the US Dollar index is in the Ichimuko clouds. While in the clouds, your vision isn’t very clear and you are cautioned not to trade without vision. The weekly chart looks as though the US Dollar index is making a nice rounding bottom. All the indicators that we follow herein are issuing a buy-signal for the weekly time frame. When regarding the monthly chart we notice that the indicators are all positive however we remain below the long term downtrend line.
The Canadian Dollar retreated and printed a new low for the week in the Friday session. The market remains in a trading range bounded by 96.68 and 99.95. Until and unless either of these numbers giveaway, we will remain range-bound. The indicators are uniformly pointing lower however; the stochastic indicator and our own indicator are beginning to curl to the upside but are far away from giving a positive signal. The 5-period moving average is at 98.84. The top of the Bollinger band is at 99.73 and the lower edge is seen at 97.43, the band reflecting the narrowness of the range. We remain below the Ichimuko clouds and in negative territory. The weekly chart shows that the market is coiling, or going sideways. We are in the Ichimuko clouds on the weekly chart. The monthly chart looks as though we are forming a pennant. The indicators for the monthly chart are all pointing lower.
The Euro continued its decline in the Friday session retreating enough to give us a 12-count on the daily chart. The DeMark Expert indicator is issuing a buy-signal however the other indicators, although oversold, are simply going sideways. The 5-period moving average is at 155.136. The top of the Bollinger band is at 160.08 and the lower edge is seen at 154.03. We could see the Euro retreat to 151.96 without much trouble. Below that level, we have support at 149.30. We are in the Ichimuko clouds on the daily chart, but remain above the clouds for the weekly time-frame. The indicators are uniformly negative on the weekly chart for the Euro, however; we remain well above the uptrend line. The monthly chart tells the same story and verifies the findings of the weekly chart.
The British Pound Sterling looks range-bound and dull. The indicators are all going sideways showing the dullness seen on the chart. We are below the Ichimuko clouds on the daily chart. The 5-period moving average is at 197.26. The top of the Bollinger band is at 199.00 and the lower edge is seen at 195.13. Both the weekly and the monthly charts are coiling. The indicators for both time-frames are negative.
The S&P 500 broke to the upside with the Friday “Jobs” report rallying to 1426.90 before profiteers emerged driving the market back to neutral and then negative levels. This index has been stair-stepping higher and has broken the downtrend line on the daily chart. The indicators are all in overbought territory. The stochastic indicator is issuing a fresh sell-signal. The Thomas DeMark Expert indicator is also issuing a sell-signal but the RSI and our own indicator have not issued that signal at this time. It appears that our own indicator will issue a sell-signal within a day or so. The 5-period moving average is at 1400.46. The top of the Bollinger band is at 1421.93 and the lower edge is seen at 1331.37. The 200 day moving average is at 1437.30. We are above the Ichimuko clouds on the daily chart but below those clouds on the weekly chart. The weekly chart looks as though we have put in a rounded bottom. The stochastic indicator, our own indicator and the Thomas DeMark Expert indicator are all overbought. The Thomas DeMark Expert indicator is flashing a sell-signal and the stochastic indicator will, within a week or so, issue the same signal. The RSI is slightly tilted to the upside below overbought levels. On the monthly chart, we are above the Ichimuko clouds and all of the indicators have turned positive.
The NASDAQ 100 looks as though the Thursday-Friday rally pushed this index out of its prior range. We do have a doji-like candle on the chart as a result of the Friday session. The doji shows some lack of conviction or fear in front of the week-end. The indicators that we follow are all extremely overbought, but only the Thomas DeMark Expert indicator and the stochastic indicator have issued a sell-signal. Our own indicator and the RSI remain positive although they look as though they could turn lower by the end of the Monday session. The 5-period moving average is at 1952.45. The top of the Bollinger band is at 1995.87 and the lower edge is seen at 1780.77. We have crossed above the 200 day moving average of 1966.98 and closed above that level in both the Thursday and Friday session. We are above the Ichimuko clouds for the daily time-frame, but below the clouds on the weekly time-frame. The weekly chart shows an extremely overbought market with signs of exhaustion. The weekly chart also shows the steady progress to the upside that the NASDAQ 100 has enjoyed. All the indicators that we follow are overbought based on the weekly chart. Again, we see that the monthly chart is telling a different story. This time-frame shows the steady progress this market has made to the upside and indicates that there is more upside ahead. We shall see.
The Russell 2000 didn’t close positive in the Friday session. The indicators that we follow are all flashing a sell-signal from overbought levels for the Russell 2000. The 5-period moving average is at 723.92. The top of the Bollinger band is at 734.68 and the lower edge is seen at 687.68. We view the action in the Friday session as a failure. The 200 day moving average is at 753.77. We are above the Ichimuko clouds on the daily chart but remain well below those clouds on the weekly chart. The Market Profile chart illustrates to us that the market is in a very comfortable spot. Further, it illustrated that we will not see instability until or unless we trade above 732.00-734.60.
The Continuous Commodity Index had an inside day in the Friday session. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. On Thursday we had a 9-count which illustrated that the market was very oversold. The 5-period moving average is at 538.45. The top of the Bollinger band is at 561.68 and the lower edge is seen at 529.40. We are in the Ichimuko clouds on the daily chart, but remain far above the clouds for the weekly chart. We are below the downtrend line at 540.46 for the Monday session and will need to close above that line to turn this chart positive. We also need to stay above the Thursday low of 525.10 to remain above the uptrend line. The weekly chart is less positive and looks as though we are in a downtrend. The stochastic indicator, the RSI and our own indicator are all issuing a uniform sell-signal for the weekly time-frame. The Thomas DeMark Expert indicator is issuing a continued buy-signal, at overbought levels. We seem to be forming a pennant on the weekly chart. The monthly chart confirms the findings of the weekly chart.
July sugar has been on a downtrend since printing the recent high on April 17th. Friday’s session left a very small green candle on the chart, the first green candle in 7 of the past 8 trading days. We have a 9-count on the bottom which is an oversold count. The downtrend line for the Monday session is at 11.83. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. The Thomas DeMark Expert indicator is going sideways at neutral. The 5-period moving average is at 11.70. The top of the Bollinger band is at 13.79 and the lower edge is seen at 11.36. We remain below the Ichimuko clouds on the daily chart but above the clouds on the weekly chart. Both the weekly and the monthly chart look negative for sugar.
July cocoa continued the Thursday sell-off in the Friday session. The indicators are all oversold and are all pointing to lower levels. The 5-period moving average is at 27.14. The top of the Bollinger band is at 29.27 and the lower edge is seen at 23.40. The first level of support should be seen at 25.35. The chart looks as though it has just rolled over. We are in the clouds on the daily chart but well above the Ichimuko clouds for the weekly time-frame. The weekly chart looks better than the daily chart. The indicators for the weekly chart are issuing a sell-signal. The monthly chart isn’t really negative but then it isn’t positive either.
July coffee seems to be trying to defend the 128.80 level. The stochastic indicator is oversold and is beginning to curl to the upside but has not issued a buy-signal. The Thomas DeMark Expert indicator and the RSI are both going sideways. Our own indicator looks much like the stochastic indicator but is not oversold. The 5-period moving average is at 132.80. The top of the Bollinger band is at 140.91 and the lower edge is seen at 128.92. July coffee needs to stay above 128.80 or risk a trip to 120 and perhaps lower. The indicators on the weekly chart are oversold but continue to go sideways. We will watch July coffee for clues as to which direction it will take.
July Frozen Concentrated Orange Juice looks as though it is building a rounding bottom and a base from which to rally. The stochastic indicator, our own indicator and the RSI are all issuing a fresh buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period moving average is at 120.80. The top of the Bollinger band is at 124.09 and the lower edge is seen at 112.29. The weekly chart verifies the findings of the daily chart. The uptrend line is at 114.52 on the weekly chart. We feel good about the FCOJ chart.
July cotton continued below the downtrend line in the Friday session. Friday’s session was an inside day although, cotton managed to close above the opening leaving a green candle on the chart. All the indicators that we follow herein are issuing a uniform buy-signal. The 5-period moving average is at 70.44. The top of the Bollinger band is at 80.18 and the lower edge is seen at 68.43. The indicators on the weekly chart are pointing lower at oversold levels. There is a liability for July cotton to trade down to 66.69 and then to 66.13. The good news is that we are above the Ichimuko clouds on a weekly chart, well something is positive.
June crude oil rallied in the face of a stronger US Dollar which indicates too many that the strength was genuine and not dollar based. We are above the Ichimuko clouds on the daily chart. The stochastic indicator and the RSI are both issuing a buy-signal. The MACD is not, however; MACD lags quite a bit. The 5-period moving average is at 115.56. The top of the Bollinger band is at 120.86 and the lower edge is seen at 107.20. We thought that this market would bounce from the 109.51 area but were wrong, it bounced from 110.30. 109.56 is also a 50% retracement number from the April lows to the highs. The weekly chart, although positive, indicates that we could have a pullback. The stochastic indicator on the weekly chart is issuing a fresh sell-signal. Would we sell crude short…..NO, we do not stand in front of moving trains either. The RSI for the weekly time-frame is flashing a sell-signal from overbought levels. The monthly chart is positive although extremely overbought.
June gold rallied in the Friday session but was unable to make much progress to the upside. We need to see a close above the downtrend line of 867.00 to get our interest back to the bullish side of the market. The 5-period moving average is at 869.26. The top of the Bollinger band is at 965.69 and the lower edge is seen at 852.85. The weekly chart continues to look bearish however, the indicators are now oversold. The charts indicate that should we remain below the downtrend line that it will be likely that we will revisit 825, 800 and 777.