The Option Queen Letter for June 2, 2008

Many analysts, media talking heads and investment firms are speaking about the ever depreciating value of the “Ole Homestead.” While real-estate values of homes continue to spiral down, removing much of the excesses seen in the real-estate bubble, we have increasing values in “farm land.” These prized money producing asset are emulating some of the bubble behavior seen in the real-estate market. You say they are both real-estate, and, in fact that is true. One is home and the other is farm. Obviously, farm is far better than home. Recently, many individuals have received their rebate checks and have applied the miniscule tax-rebate (yes, it was your tax money that they returned to you in one form or the other, remember, you pay taxes to keep the government afloat) you received to outstanding bills, mortgage, food, gas etc. You really think you hit the lottery with that free money! The real lottery winners are the farmers who just won another “farm bill” in congress by enough votes that even a presidential veto won’t stop it.

Here is the twist, the farm bill covers farm related industries that support row crops, like corn (ya think they need support). This is a 5-year stimulus for anyone in a farm-related business including research and development for fruits and vegetables and even for sheep and goats. The size of the package: 289 billion dollars! The single farmer will collect this benefit so long as their income for the farm is below $750,000 and their individual income does not exceed $500,000. That is an adjusted gross income not a gross income. Hello, anyone reading this stuff! Why isn’t the public, who is buried in debt, screaming about this payout to the “rich folk farmers?” The farm bill gets even better; the farmers gain a row crop reimbursement, which means should corn prices slide to a specified level, the farmers will pass go and collect more money! Tell that to the grocery store on the corner! How about the cleaners or the local merchants? How about paying them if business slows down, don’t they count also? We noticed that the sugar based ethanol’s tariff on imported Brazilian ethanol was extended to 2010 and remains at 54cents per gallon. Does anybody in the great country of ours read or pay attention to what is going on? It is an outrage! Remember, we all elected these parasitic public servants to congress. We do understand that this is an election year, however; inflation is booming and it appears that the government, your elected officials, are adding some more fuel to that fire.

So where is the stock market going? Actually, nowhere, it is stuck in the mud between the 200 day moving average and the 50 day moving average. The market has been trading on low volume for both up and down days. It seems that the summer doldrums has already set in, and that few are willing to test the investment water, that is until and unless the market moves out of its range. This past week we did see some carnage in the US Government bonds sending interest rates to the highest levels seen for the calendar year 2008. It could be a sign that money is moving out of the safety of government bonds and looking for a better return. Usually when this sort of thing occurs, we see a flow into market, this week, the volume did not support that finding. Where did it go, we don’t know. The downside for the US Bonds may have been overdone so; we could see a rally in the bonds this coming week.

Monday: April construction spending is released at 10:00 and ISM manufacturing for May is released at 10:00.

Tuesday: May car sales are released, April factory orders are released at 10:00 and Fed Chairman Bernanke speaks.

Wednesday: 1st quarter productivity is released at 8:30, Challenger, Gray & Christmas report on job cuts for May at 7:30, May ISM manufacturing report on business is released at 10:00, and Fed Chairman Bernanke speaks.

Thursday: Chain store sales for May are released, the Bank of England issues its interest rate decision, the European Central Bank releases its interest rate decision and Philadelphia Fed President Plosser speaks.

Friday: May non-farm payrolls and unemployment rate are released at 8:30, April wholesale inventories are released at 10:00, consumer credit for April is released at 3:00, and Fed Governor Kroszner speaks.

US Dollar index bulls need to see this index cross above 74.065! Remember also that we are nearing roll-over. We had a mechanical buy-signal in the US Dollar index this past week on Tuesday. The market rallied for most of the week with some mild profit taking in the Friday session. The market closed at the 20 day moving average, in the Friday session. The 5-period moving average is 72.644. The top of the Bollinger band is at 74.016 and the lower edge is seen at 71.889. The RSI has curled over and is pointing lower. The stochastic indicator and our own indicator are both curling to the downside and will issue a sell-signal, for the stochastic indicator in the next session and for our own indicator in a day or two. The Thomas DeMark Expert indicator is overbought and pointing higher. The US Dollar index looks very much like a sine wave with both rounding tops and, most recently, a rounding bottom. When looking at the Ichimuko clouds, you will notice that the US Dollar has entered the cloud, an area where trading is not recommended because of its trendless nature. The weekly chart seems to reflect a range-bound market. The stochastic indicator, our own indicator and the RSI are all pointing high for the weekly chart. The Thomas DeMark Expert indicator is issuing a sell-signal on the weekly chart. We are below the clouds on the weekly chart and below the downtrend line of 73.941. The monthly chart verifies the findings of the weekly chart.

We think it likely that the US Dollar index will retreat to 72.16 for the bullish viewpoint or, could remove the low seen on May 27 of 71.915 and open the door to the low of 71.05, seen on April 22nd.

The Canadian Dollar retreated in the Friday session. The daily chart shows an expanding range. On Thursday, the Canadian Dollar challenged the most recent peak of 101.80 of May 21st, and traded to 101.76 before retreating. We are above the Ichimuko clouds on the daily chart, in the clouds for the weekly and above the clouds for the monthly chart. All the indicators that we follow herein are issuing a continued sell-signal with plenty of room to the downside. The 5-period moving average is at 99.678. The top of the Bollinger band is at 102.02 and the lower edge is seen at 98.02. The weekly chart paints a picture of a range-bound market. All the indicators on the weekly chart are issuing a sell-signal. We need to see the Canadian Dollar close above 101.70 on a weekly chart to open the door to the upside. The monthly chart shows a pennant formation which seems to be continuing.

The Euro rallied in the Friday session taking back some of the lost ground given up in the Thursday session. Both the stochastic indicator and our own indicator are curling to the upside and could, within a day or so, issue a buy-signal. The RSI is pointing higher. The Thomas DeMark Expert indicator is issuing a solid sell-signal at grossly oversold levels. The 5-period moving average is at 156.23. The top of the Bollinger band is at 157.729 and the lower edge is seen at 152.908. We are inside the trendless Ichimuko clouds. The equilibrium area as measured by Market Profile is between 156.18 and 153.53. On the weekly chart, we see that we are above the clouds and that the trading range for this past week was slightly larger than the previous week’s range. The stochastic indicator, our own indicator and the RSI all are issuing a sell-signal. The Thomas DeMark Expert indicator is issuing nothing of value. The stochastic indicator and the RSI remain overbought for the monthly time-frame and are issuing a continued sell-signal.

The British Pound Sterling has signs of exhaustion on the daily chart. The rub here is that we need to see a close above 198.18 to get this currency moving to the upside. On the other hand, we need to see a close below 196.49 to get the bears moving and a slide to the lower edge of the comfort zone at 195.05. The 5-period moving average is at 197.62. The top of the Bollinger band is at 198.72 and the lower edge is seen at 193.20. The 50 day moving average is at 196.81. The stochastic indicator is flashing a buy-signal at overbought levels. Our own indicator and the RSI are issuing a buy-signal but are not at overbought levels. The Thomas DeMark Expert indicator is really trendless. We closed above the Ichimuko clouds, on the daily chart, below the clouds on the weekly chart and above the clouds for the monthly chart. The weekly chart looks very range-bound with the lower edge at 193.30 and the upper edge at 202.30. Both of those numbers are extremes and we would expect to see retreats to 194.11 and rallies to 199.35, number inside the recent extremes. Until or unless this currency breaks out of its range, we expect to see a continuation of dull summer trading.

The S&P 500 defended the 1372.40 in the Tuesday session. That done, the market rallied to print a high in the Thursday session of 1407.00. Friday’s rally was not enough of a rally to better the Thursday high. We saw an inside day in the Friday session. We were surprised to see the light volume and total disinterest in action in the Friday session. It was, after all, the end of the month and supposed to be exciting. Oh well so much for market expectations and reality. Monday, we should see a flurry of cash entering the market as retirement accounts put money to work. The indicators that we follow are reflecting this lack-luster behavior and are, although positive, only mildly positive. We are above the Ichimuko clouds on the daily chart, below the clouds for the weekly chart and above the clouds for the monthly chart. The 5-period moving average is at 1389.85. The top of the Bollinger band is at 1432.97 and the lower edge is seen at 1369.97. The 50 day moving average is at 1381.225 and the 200 day moving average is at 1439.7962. You clearly see that we are safely tucked between those levels. The Market Profile value areas for the weekly chart are: 1422.25 and 1370.50. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal albeit at overbought levels, on the weekly chart. The Thomas DeMark expert indicator is issuing a sell-signal for the weekly time-frame. The indicators on the monthly chart are positive, but only mildly positive. We clearly have a double bottom at 1255.50. So long as that level holds, the market will try to move to the upside. That said, we do not feel very comfortable on the bullish side but agree that sitting in the money markets will only give you a negative return and that money needs to be put to work. Would we buy the index now? No, but we will be buyers once we break to the upside of the range. On the other hand, we continue to believe that there is yet another accident hiding in the wings somewhere which will lead to a test of that low, again.

The NASDAQ 100 pulled the S&P 500 higher, kicking and screaming all the way. This index outperformed the S&P 500. We enjoyed a 5-day rally taking the index to 2045.00 a cat’s whisker from the high of May 19 of 2055.00. All the indicators that we follow herein continue to issue a buy-signal albeit at or near over bought levels. Naturally we are above the Ichimuko clouds and touched the upper band of the Bollinger band in the Friday session. The 5-period moving average is at 2004.65. The top of the Bollinger band is at 2047.88 and the lower edge is seen at 1940.9431. We have an overbought 10-count on the daily chart. We have signs of exhaustion on the weekly chart. The stochastic indicator, our own indicator and the RSI are all pointing higher at overbought levels. The Thomas DeMark Expert indicator is going sideways. We are in the Ichimuko clouds on the weekly chart. We seem to be stalling here. The monthly chart is positive with all the indicators pointing higher. This is the third up month for this index.

The Russell 2000 took to the upside and sprinted close to the 200 day moving average. All the indicators that we follow herein are issuing a continued buy-signal at overbought levels. It looks as though the money was flowing into the NASDAQ 100 and the Russell 2000 away from the Russell 1000 and the S&P 500. We are above the Ichimuko clouds for the daily chart, below the clouds for the weekly chart and above the clouds on the monthly chart. The 5-period moving average is at 738.04. The top of the Bollinger band is at 750.75 and the lower edge is seen at 714.14. We have a 9-count on the weekly chart. The stochastic indicator, our own indicator and the RSI are all overbought issuing a buy-signal for the weekly time-frame. The Thomas DeMark Expert indicator is overbought and going sideways. The monthly chart is positive for this index.

The Continuous Commodity Index closed up in the Friday session challenging the short-term downtrend line of 544.78. The downtrend line for the Monday session is at 543.79. The stochastic indicator, our own indicator and the RSI are all uniformly issuing a buy-signal. The Thomas DeMark Expert indicator is pointing lower at oversold levels. The 5-period moving average is at 543.07. The top of the Bollinger band is at 557.372 and the lower edge is seen at 533.714. There is an uptrend line, on the daily chart, at 540.18, which we need to stay above to continue the bullish behavior. The weekly chart looks as though we are forming a pennant. The indicators that we follow are negative for this time-frame. We are above the Ichimuko clouds for both the weekly and the monthly time-frames. The Market Profile value areas for the weekly chart are 551.76 and 535.47.

We should title this depression and cotton! The good news is that July cotton seems to be slowing down the decent. The bad news is that it is a decent and not a rally. So long as the low of 65.11 is not removed, we will probably see a rally. The stochastic indicator, however, continues to point lower at grossly oversold levels. The RSI is oversold and pointing lower. Our own indicator and the Thomas DeMark Expert indicator are issuing a buy-signal. Naturally, we are below the Ichimuko clouds and at the lower edge of the Bollinger band, a level which is not sustainable. The 5-period moving average is at 66.736. The top of the Bollinger band is at 73.606 and the lower edge is seen at 65.793.

We have a 6-count on the bottom which really doesn’t tell us much. The weekly chart continues to probe to the downside with support seen at 62.45 and 62.30. We are above the Ichimuko clouds for the weekly chart and the monthly chart. The stochastic indicator, our own indicator and the RSI all continue to issue a sell-signal for the weekly time-frame. The Thomas DeMark Expert indicator is issuing a buy-signal, go figure!

July cocoa loves to rally! We do have a doji candle as a result of the Friday session. As you know, a doji indicates that we are at a transition point. A point where both bulls and bears are evenly matched a level where the direction could be shifted away from the bulls to the bears. The stochastic indicator and our own indicator are both curling over to the downside and will within two days, issue a sell-signal. The RSI has already turned and is pointing lower. The Thomas DeMark Expert indicator is overbought and pointing higher. The 5-period moving average is at 26.484. The top of the Bollinger band is at 27.682 and the lower edge is seen at 25.373. We are above the clouds for the weekly time-frame. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. We have a mechanical sell-signal on the weekly chart. The Thomas DeMark Expert indicator is issuing a sell-signal for that time-frame. The monthly time frame is warning that there could be trouble ahead.

July sugar rallied in the Friday session after printing a new low for the week. This market has been retreating in a very neat organized fashion, actually maddeningly so. The downtrend line is at 10.38 for the Monday session. The stochastic indicator and the RSI remain at grossly oversold levels and are issuing a tentative buy-signal. Our own indicator is issuing a mild buy-signal. The Thomas DeMark Expert indicator is going sideways at neutral. Naturally, we remain below the daily Ichimuko clouds. The 5-period moving average is at 10.036. The top of the Bollinger band is at 12.169 and the lower edge is seen at 965.87. The weekly chart warns that we could revisit the lows of 9.63 and 9.50. All the indicators that we follow for the weekly time-frame are uniformly issuing a fresh buy-signal. We are inside the weekly Ichimuko clouds and below the clouds on the monthly chart.

July coffee remained above the uptrend line of 132.25 in the Friday session. That uptrend line is at 132.54 for the Monday session. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal on the daily chart. The Thomas DeMark Expert indicator is issuing a sell-signal. July coffee is trading in a very narrow range between 128.75 and 142.00. Until or unless the market breaks to either side of this range, expect to see dull listless trading. The 5-period moving average is at 133.60. The top of the Bollinger band is at 140.43 and the lower edge is seen at 129.64. We are below the Ichimuko clouds on the daily chart, above the clouds on the weekly and the monthly time-frames. The weekly and the monthly chart reflect the dullness of the trade.

July Frozen Concentrated Orange Juice has a bullish engulfing candle as a result of the Friday session. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period moving average is at106.80. The top of the Bollinger band is at 125.00 and the lower edge is seen at 99.79. The 50 day moving average is at 115.125. FCOJ is below the Ichimuko clouds for weekly time-frame but above the clouds for the monthly. We have a doji candle on the weekly chart which gives rise to a more bullish tone. Further, the indicators for the weekly time-frame are all positive.

Crude oil made a low for the week in the Friday session but remains above the Market Profile value low level of 122.90. The Market Profile high level is 133.70. The 5-period moving average is at 129.358. The top of the Bollinger band is at 134.435 and the lower edge is seen at 119.272. The RSI is curling to the upside pointing to higher levels. The stochastic indicator and our own indicator are curling to the upside but have not issued a buy-signal. We are above the Ichimuko clouds for the daily, the weekly, and the monthly charts. We are overbought as measured by the stochastic indicator, our own indicator and the RSI for the weekly time-frame all are issuing a sell-signal. The monthly chart shows the same overbought condition but without a sell-signal. Taking the monthly chart and placing on that chart Fibonacci retracement numbers using 49 at the low and 135 at the high we find that the 38% number is 102.21, the 50% number is 92.06 and the 62% number is 81.90. If instead we use 135 as a high and 86 as a low we find 32% number is 115.93, the 50% number is 110.01 and the 62% number is 104.09. We can see $150 on the upside with a possible run to $161. Are we in the 9th inning of the game in crude oil? Who knows where it will stop.

June gold retreated to 873 in the Friday session and rallied to close higher on the day. We continue to see a liability to the 863.10 area. The stochastic indicator and our own indicator are curling to the upside and will issue a buy-signal within a day or so. The RSI has already issued that signal. We continue to trade below the Ichimuko clouds on the daily chart but above the clouds for both the weekly and the monthly time-frame.

The 5-period moving average is at 904.98. The top of the Bollinger band is at 940.52 and the lower edge is seen at 857.52. The Market Profile value area is 911.90 to 863.10. Ideally, we would like to see gold say above 871.80, an uptrend line on the weekly chart. The downtrend line on the weekly chart is at 923.10, a level which must be removed to turn this chart bullish.

One Response to “The Option Queen Letter for June 2, 2008”

  1. [...] __ wrote an interesting post today onHere’s a quick excerptThe Option Queen Letter for June 2, 2008 June 2nd, 2008 Many analysts, media talking heads and investment firms are speaking about the ever depreciating value of the “Ole Homestead.” While real-estate values of homes continue to spiral down, removing much of the excesses seen in the real-estate bubble, we have increasing values in “farm land.” These prized money producing asset are emulating some of the bubble behavior seen in the real-estate market. You say they are both real-estate, and, in [...]

Leave a Reply

You must be logged in to post a comment.