Archive for October, 2007

Optnqueen Newsletter for October 28, 2007

Sunday, October 28th, 2007

Most gurus and financial experts expect to see another rate cut this coming Wednesday, when the FOMC releases its interest rate decision and statement. While 25 basis points seem to be baked into the market cake already, the possibility of a 50 basis point cut is certainly within the realm of possibilities. That, along with the end of the month portfolio dressing and undressing, should make for a very interesting Wednesday afternoon. Our concern is that this august group of FOMC attendees might forget that a weak US dollar can have a very negative effect in the long-run. The US dollar has been under considerable pressure and this additional pressure may just be the stimulus for a final capitulation and a bottom for the US dollar. Also, we are extremely concerned about the resulting inflationary spiral on which we’ll be embarking. It will be comparable to a roller-coaster that is “on the move,” and impossible to halt, until it self-slows down.

So what does a FOMC interest rate cut tell us? Well it does tell us that things here are so bad that the FOMC fears a recession and an economic downturn so severe, that it willing to live with inflation. The problem is that this sort of inflationary spiral, once it begins, is hard to halt. While we may be in a recession or, entering one, countries like China and India may not be affected by our problems. While it is true that the Chinese do depend on exports to our shore, we are not their only trading partners and they will survive, even if we slow down. In the past, when the US caught an economic cold, the globe caught pneumonia. Today, we are not the force we were in the past, and we need to remember that fact. By Halloween, Wednesday, we will have either a trick or a treat….well, perhaps a bit of both, this time around.

Another important point is, that while the market seems to crave lower short-term interest rates, stimulated by an accommodative FOMC, this action will not help the credit crisis, which is upon us. The FOMC controls short-term rates, but the market will seek its own level, regarding longer-term debt. There is yet another question to be answered and that is: where are the buyers of lower yielding treasuries, based in a declining US dollar, coming from? We have an additional concern; with the flows of investment dollars away from US dollar-based corporate debt securities. Another question is: are banks going to lend money? and, at what rate, will they make those loans. It seems that our global partners are not interested in lending money to our corporations, thus, we are now seeing a net outflow of capital away from our shores.

It is easily understood that the global economy has kept prices low, however, with the softness demonstrated in the US dollar, some of these price savings are beginning to disappear, as global-workers who are paid in US dollars, will demand more of the depreciating currency. Naturally, this cost push will flow to the bottom-line and be passed on to the consumers, wherever they are.

Onto Putin and his new push to cause chaos in Russia. Yes, he is trying to control prices of foods which, in the past, has lead to shortages in the market and a dependence on the government, for all things necessary for living. This seems a likely return to the old, communist rule objectives. First, starve the public with shortages and inefficiencies, so that they’ll demand the return of ‘good-ole’, communist rule.

Monday: The Supreme Court hears the “Klein case”, relating to the PTech index and the mischief in the options prices that put a clearing-firm out of business.

Tuesday: October consumer confidence is released at 10:00AM.

Wednesday: 3rd quarter GDP is released at 08:30, October Chicago PMI is released at 09:45, September construction spending is released at 10:00 and at 02:15, the FOMC announces its interest rate decision and makes a short comment.

Thursday: Challenger, Gray & Christmas releases its monthly report on job cuts, September personal income and consumption is released at 08:30 and October ISM is released at 08:30.

Friday: October non-farm payrolls and unemployment are released at 08:30.

The US Dollar index printed another new low in the Friday session, but as with the other lows recently seen, this low was a gradual, effortless blip, lower without excitement, or any real volume. It is almost as though a new low is nothing special to note and, just another trade. This ho-hum attitude is somewhat unsettling. We closed below the lower Bollinger band in the Friday session, which should, at the very least, lead to a bounce in the Monday session. On a very short-term basis, we can draw a downtrend line for the last 5-days of trading, which gives us a very steep line at 77.083 for the Monday session. We can draw a less-steep line, which gives us 77.805 for Monday and an even less-steep line, which is a longer line, which yields 78.338, for the Monday session. The indicators all continue to point lower, with only the stochastic indicator, at extremely oversold levels. The 5-period exponential moving average is at 77.458 for the Monday session. The top of the Bollinger band is at 78.814 and the lower edge is seen at 77.079. The downtrend line on the weekly chart is at 78.771 for the week ending this coming Friday. The stochastic, our own indicator and the RSI, continue to issue a sell-signal on the weekly charts. The Thomas DeMark Expert indicator is issuing a buy-signal. The monthly chart is giving us much the same readings, as are the other time-frames. There seems to be a noticeable slowing of the downdraft in the monthly chart….well, so far, there is. We continue to believe that there are too many US Dollar index bears and that the boat will eventually tip over, spilling the bears into the drink. Unfortunately, the shorts are happy the bears are happy and nobody seems to be in a rush to cover or trade a possible bounce. Until that happens, we are afraid that the same old drift to lower, will continue. Additionally, we have the FOMC meeting, adding some extra weakness to this index. Perhaps once the rate cut is done, the market will have a relief-rally.

The Euro continued the rally in the Friday session, yielding a scary 15-count! The stochastic indicator is overbought and continues to issue a buy-signal. The RSI is overbought and agrees with the stochastic signal. Our own indicator is issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal, from a neutral level. The 5-period exponential moving average is at 142.860. The top of the Bollinger band is at 143.746 and the lower edge is seen at 140.751. Please note that this market has closed above the upper edge of the Bollinger band and, likely, will retreat from that level. Should we gap down, we could be setting-up for a decent sell-signal. The weekly chart of the Euro is exhausted, with a 14-count. The RSI and the stochastic indicator are both overbought, but continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal, from overbought levels and our own indicator is going sideways, with no signal at this time. The monthly chart also has signs of exhaustion and is grossly overbought, as measured by the indicators. All are showing toppy exhaustion, but have not issued a sell-signal. The question is: how high can the Euro go? We believe that we are very close to the upper edge and that most of the money on the upside, has been made. Of course, we are not willing to sell the Euro either, rather, we will wait and see where the trade takes us.

The Canadian dollar is another toppy chart to look at, with a 10-count and a doji candle, from the Friday session. The indicators are, uniformly issuing, a continued buy-signal; all at overbought levels. The 5-period exponential moving average is at 103.18. The top of the Bollinger band is at 104.35 and the lower edge is seen at 99.94. The weekly chart is exhausted with a 9-count. The indicators here are mixed; the Thomas DeMark Expert indicator and our own indicator are both issuing a sell-signal, while the stochastic indicator and the RSI are at overbought levels and not issuing anything, just going sideways. The monthly chart looks very similar to the weekly chart, with overbought and bullish readings from the RSI, stochastic and our own indicator and, a sell-signal from the Thomas DeMark Expert indicator. The first level of support on a retreat, will be at 99.18, then at 96.55 and further, at 94.21.

The Australian dollar has a 12-count and is overextended to the upside. The stochastic indicator, the RSI, and our own indicator are all overbought and continue to issue a buy-signal. The Thomas DeMark Expert indicator is overbought and is issuing a sell-signal. The 5-period exponential moving average is at 89.824. The top of the Bollinger band is at 90.967 and the lower edge is seen at 87.610. The weekly chart demonstrates the huge rally seen in this past week’s trading. All, but the Thomas DeMark Expert indicator which is issuing a sell-signal, are issuing a continued buy-signal, at overbought levels. The monthly chart is telling the same story, but, in this time- frame, all the indicators are pointing higher. We did close above the monthly upper edge of the Bollinger band and, either we retreat or, the volatility increases, expanding the upper Bollinger band.

The US Dollar-Pound Sterling, has a doji candle and a 10-count on the chart. The stochastic indicator, our own indicator and the RSI are all going sideways. The Thomas DeMark Expert indicator is issuing a sell-signal. We do have signs of exhaustion. The 5-period exponential moving average is at 204.268. The top of the Bollinger band is at 205.067 and the lower edge is seen at 202.333. This trade has a spill-over effect on Robusta coffee, traded in both US Dollars and in Pound Sterling and, cocoa. These commodities offer an arbitrage opportunity for the trader, because of the currency differentials. The weekly chart is also exhausted and is grossly overbought. All the indicators that we follow herein, are issuing a continued buy-signal, at, overbought levels. We have what looks to be a hangman on the chart, in this time-frame. The monthly chart is warning us that we are overextended and will have problems, with a further upside-push. Our own indicator and the Thomas DeMark Expert indicator are issuing a sell-signal; the others remain on: buy.

The US Dollar-Yen trade has an 8-count on the bottom and looks to be trying to stabilize. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal, at oversold levels. The Thomas DeMark Expert indicator is going sideways, at neutral. The 5-period exponential moving average is at 113.522. The top of the Bollinger band is at 117.393 and the lower edge is seen at 112.856. The weekly chart has a doji candle on it and, should we gap open, higher this week and close that gap, will issue an important buy-signal. Yes, it is too early to say, at this time, but the possibility does exist. The indicators are saying the opposite, with a sell-signal from all that we follow herein. If we can close above 116.05, without removing 111.910, we could be setting up for a nice rally.

The US Dollar-Swiss Franc seems to be in search of a bottom. The indicators that we follow are, for the most part, issuing a continued sell-signal. The downtrend line for the Monday session is at 116.707. The 5-period exponential moving average is at 116.649. The top of the Bollinger band is at 118.322 and the lower edge is seen at 115.905. The weekly chart is showing an oversold market. This week should be a telling week and, so long as we don’t remove the 115.630 level seen during the week of September 28, we could see a good rally, taking us to the 117.940 level. The monthly charts are verifying this interpretation.

The S&P 500 rallied in celebration of Friday and the end of a week of good earnings. Four of the past five days have been celebratory efforts, taking the market back to the congestion area, seen during September. We certainly are within but a few puffs, to the upside. The indicators are uniformly issuing a continued buy-signal, with plenty of room to the upside. The 5-period exponential moving average is at 1525.68. The top of the Bollinger band is at 1589.37 and the lower edge is seen at 1508.42. This past week removed most of the downside damage done in the Friday the 19th session. We have now closed above the downtrend line, on the daily chart. With the end of the month upon us and the FOMC announcement, we may see a probe to the upside. On the other hand, there is a gap on the chart below us from 1481.00 to1485.20, which is a triple-bottom. The Fibonacci 50% retracement number is 1480.90, just below that gap……. hmmm. We are inclined to believe that should there be a break to the upside, we will have a good opportunity to sell then and then, look for a decent decline to the gap and the 50% retracement number. The indicators on the weekly chart are issuing a buy-signal; only the Thomas DeMark Expert indicator is issuing a sell-signal. The monthly chart looks toppy and the indicators seem to be in agreement with that finding, issuing a sell-signal. Be careful this week, it could be like a roller-coaster so, don’t forget to fasten your seat-belts.

The NASDAQ 100 has a triple-top and, on the next try higher, will, no doubt, remove the old highs. We seem to be having trouble gaining enough steam and we are overbought. The indicators are all issuing a continued buy-signal, at overbought levels. The 5-period exponential moving average is at 2197.45. The top of the Bollinger band is at 2232.42 and the lower edge is seen at 2119.47. The weekly chart has signs of continued exhaustion. The stochastic indicator, the RSI, and our own indicator are uniformly overbought and are issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The weekly chart shows that we are expanding both the upside and the downside. The monthly chart is also extremely overbought. The stochastic indicator, our own indicator and the RSI, all continue to issue a buy-signal, at grossly overbought levels. The Thomas DeMark Expert indicator is issuing a sell-signal.

The Russell 2000 has broken the downtrend line and is now poised to regain some momentum to the upside, playing catch-up to the other financial indices. The indicators are all issuing a continued buy-signal. The 5-period exponential moving average is at 818.14. The top of the Bollinger band is at 858.93 and the lower edge is seen at 803.85. The weekly chart shows that we are back into the upside congestion area. The stochastic indicator, the RSI and our own indicator are all issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The uptrend line for this coming week is at 795.43, a number we must stay above. The monthly chart shows that we are nearing the old highs and that we could make a renewed effort to print a new high. Frankly, we are a little bit more skeptical of that event occurring, although, given the FOMC meeting, the end of the month window-dressing and Halloween, it certainly is possible.

The continuous commodity index rallied in the last two days of the week, taking it back within a stone’s throw of a new high. The indicators are uniformly issuing a buy-signal, none at overbought levels and all, with plenty of room to the upside. The 5-period exponential moving average is at 446.98. The top of the Bollinger band is at 454.37 and the lower edge is seen at 437.80. The weekly chart has signs of exhaustion, but then it has been exhausted for the past eight weeks, without a real retreat. The indicators in this time frame are more confused. The stochastic indicator is overbought and could issue a sell-signal, by Friday. The Thomas DeMark Expert indicator is issuing a sell-signal; our own indicator is in agreement with that signal. The RSI is simply going sideways, just below the overbought line. Looking at the monthly chart is a bit more disquieting, in that we have a doji candle, which tells us that we are at a point where we could change directions. To further scare us, there is a 15-count, which alerts us to the extremely overbought condition in which we find ourselves. Would we go long at this juncture? No. But we sure wouldn’t short this index.

March sugar ran to the upside on Friday, scared itself, and retreated to close, near the lows of the day. The stochastic indicator, our own indicator and the RSI are all issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal, at overbought levels. We need to stay above 10.15 on Monday, to maintain the uptrend line. The 5-period exponential moving average is at 10.16. The top of the Bollinger band is at 10.32 and the lower edge is seen at 9.65. We had a huge range in the Friday session, expanding both the upside and downside. The weekly chart shows that we are trying to probe the 10.79 and 10.85, resistance levels. We have closed above the longer downtrend line. The indicators are curling over to the downside but have not issued a sell-signal. The monthly chart tells us that March sugar needs to stay above 9.68, or risk a return to a lower level.

Friday December cocoa enjoyed a very robust rally. The market opened the day at the lower levels and rallied higher in the early session, triggering some buy-stops which, in turn, triggered more buy-stops. The market drifted lower after the initial buy-stops were executed; however, by the end of the session, regained some steam to the upside. The buy-stops carried the market to 19.40, filling the orders at these higher levels. Locals sold into this rally, scalping. All the indicators that we follow in this report are issuing a buy-signal. The 5-period exponential moving average is at 18.52. The top of the Bollinger band is at 19.58 and the lower edge is seen at 17.76. This rally looks as though it can lift the market to the recent high of 20.50. The weekly chart shows a 13-count on the bottom. We do have signs of exhaustion. The indicators are uniformly issuing a buy-signal, for the weekly time-frame. The monthly chart is in agreement with the weekly chart.

December coffee ended a bad week, with a rally in the Friday session. We do have a 9-count on the bottom. All the indicators that we follow herein are issuing a fresh, buy-signal. On a very short-term basis, we need to see a close above 122.27. The uptrend line is at 118.35 for the Monday session. The 5-period exponential moving average is at 122.60. The top of the Bollinger band is at 142.70 and the lower edge is seen at 118.47. So, we see the importance of the 118 area. The weekly chart is a bit more disturbing and shows that we have more room to the downside. The indicators are uniformly issuing a continued sell-signal. The uptrend line on the weekly chart is at 118.46, a level above which that it needs to close. Clearly, that level is important as the number keeps reoccurring.

Friday’s session for Frozen Concentrated Orange Juice was a day when we saw the result of a point of inflection. When the downtrend line and the uptrend line meet, they form a point of inflection, which is generally chaotic for the market. One should not fight the trend of the market on days of inflection. The magic number for FCOJ was 143, and change. The market could not stay above that number and it retreated. The Friday session left a huge red candle on the chart, the result of a point of inflection. The stochastic indicator, our own indicator and the RSI are all issuing a continued sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period exponential moving average is at 143.93. The top of the Bollinger band is at 156.60 and the lower edge is seen at 127.77. We believe that there is more room to the downside and that we will retest the 135 area. The weekly chart is more bearish than is the daily chart. All the indicators that we follow herein are issuing a solid sell-signal. The best news we can give you is that on the weekly chart, we remain above the uptrend line. We would not be surprised to see FCOJ test the 127 to 125 level; below there, of course, the lows.

December cotton is trapped in a trading range from 62.15 to 65. 65. Until and unless December cotton can break either of these levels, it will remain in this tight range. 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 exponential moving average is at 64.63. The top of the Bollinger band is at 65.67 and the lower edge is seen at 62.30. The uptrend line for Monday is at 63.65. The weekly chart seems to be forming a pennant. The indicators are mixed, with the stochastic indicator issuing a buy-signal and all the others that we follow, issuing a sell-signal. At the moment, looking at all the time frames, we are inclined to stand aside until the picture becomes clearer.

Crude oil is approaching the $100 level, which we though unheard of, last year, when it was trading at $49.90 and $52.00 per barrel. The indicators continue to point higher, but these indicators are losing steam and are grossly overbought. The 5-period moving average is at 88.14. The top of the Bollinger band is at 91.75 and the lower edge is seen at 75.81. We closed the session slightly above the upper edge of the Bollinger band and we will either expand the Bollinger band or, retreat. We believe that a pull-back will be seen before the next run to the upside is felt. The weekly chart is also overbought but the indicators continue to point higher. The monthly chart is telling the same story, overbought, but, going higher. If the world is awash in crude, why is it going higher? Obviously, there is some political risk in the mix and the oil platform disasters, that we saw last week, in the Gulf of Mexico; then the sanctions against Iran aren’t helping and, to add to the mix of problems, Alberta’s Premier’s decision, regarding the royalties to be paid by the oil companies, virtually ends any exploration and production, not already in progress. Whew! So, now what? It isn’t going to get that much worse, but maybe crude wants to print the $100, before taking a well-deserved rest and retreating. Back to, say $78.40 and then, $68.09. Would we fight this trend? No, not at the moment, but we may start looking for some longer-term puts.

December gold traded higher in the Friday session, leaving a large green- candle on the chart. The indicators are all overbought, but continue to issue a buy-signal. The 5-period moving average is at 769.44. The top of the Bollinger band is at 782.40 and the lower edge is seen at 730.30. We closed the session above the upper edge of the Bollinger band, an area where we can not stay; therefore we expect to see a retreat from this level. The weekly chart continues to look good, but we are grossly overbought. It really looks as though the few shorts that are out there, are being choked to death with the bulls keeping the pressure on the upside. We would like to buy this market but will wait until the market retreats, which, it will. We look at 759.90 area as a good place to start to nibble.