The Option Queen Newsletter

Watch Jeanette on www.MN1.com every Monday’s between 4:30 and 5:00 EST.
 
Would you believe that the Canadian Dollar is worth more than the US Dollar?  Well, it is and it has been, for several weeks!  Think about Canadians crossing the borders to find cheap US goods, where they don’t have to pay the huge taxes, levied on goods in Canada.  We can see a cottage industry here….tours to the US for shopping.   Why not form malls on the Canadian- American border?  Border shopping could become a craze!  The US merchants will love it and surely, so too will the Canadians. The only problem will obtain in the loss of tax receipts therefore, for the Canadian Government. 
 
This coming week, is an option’s expiration week, and the anniversary of the 1987 crash.  Yes, last week was the birthday of the bull market, which is now five years old.  There seems to be no end in sight to this bull market.  We have noticed something though, that as the NASDAQ 100 goes, so too goes the market. 
 
Problems in the bond market seem to have been abated and, the spreads are beginning to regain a sense of normalcy.  Risk appetites are returning to this market, thereby throwing caution to the winds.  We have learned that we need to buy the dips, any dips, just throw our money at the market and, it will rally.  Should the market retreat for a day, you will have the rare ability to buy something.   Naturally, we are being sarcastic, but in reality, the market is acting such a part.  Portfolio managers are busy, playing catch-up with their benchmarks and are plowing dollars into anything that seems to have a pulse or, an upward trend. 
 
This is really getting scary; we will advise that you keep your jets in check and sit on your cash.  Better buying opportunities will appear and you will then have the ability to buy wisely.   There isn’t a bull alive today who will admit it, but the perception of the market has changed, as a result of the two sell-offs seen, this past year.  The market participants no longer believe that nothing can happen, and have shown us that, although they preach bull-talk, they are just a little concerned that another hair-cut could crop up, out of nowhere.  Take a look at the VIX, which measures volatility in the near-by options, traded on the S&P 500.  Today, we are in the 17 area which, a year ago, would have been considered high.  Going back into history, we continue to trade with a low level of anxiety, when contrasted with a longer-term, view.  Today’s anxiety level has been tweaked a bit higher since the February and August retreats.    Does this mean that the masses will go for the exits at the first whiff of a problem?  Well, yes it does. We remind you of this past Thursday’s session, when the S&P 500 went from a plus 12.25  or, 1586.50 to 1556.50, a minus 15, all done in about two hours,  only to rebound and close the session, modestly lower.  We were looking for the cause and looked to the NASDAQ and found, it.  This index was plus 34 and plunged on a non-stop retreat, dragging with it the S&P 500.  Hmm.., antsy market isn’t it? On the other hand,   the bulls are in control of this market, and most pundits are looking for a continuation of this pole-like rally.
 
We are a little bit more concerned and do believe that the downdraft will re-appear, and fairly soon.  Tomorrow? Probably not, but soon.  Regarding inflation!  You have to be kidding if you don’t see it all around you.  Where are the bean counters looking? Obviously, not in the grocery store, municipal taxes, utilities, etc.  The only things that remain fairly cheap are computers and low-end apparel.  The high-end apparel is really over the top.  Given the low levels to which the US Dollar has fallen, we can justify some of the increased costs from our beloved apparel imports, but $1050. shoes? You have to be kidding…..okay, so they were Channel, but geeze!!!!!
 
On Monday, we will hear from Citigroup, with 3rd quarter earnings.  They have guided lower, and we all have reduced expectations for Monday’s number.  This will be followed by other banks on Tuesday, along with IBM, Intel and Yahoo.  Wednesday, we hear from JPMorgan-Chase, WaMu, Bank of America, Bank of New York, SunTrust and Google, just to name a few.  Friday’s list includes Wachovia.  All this, on an option’s expiration week, so, tighten those seat-belts!
 
Monday:  October’s Empire State manufacturing index is released at 08:30, Fox Business Channel begins to broadcast and, Chairman Bernanke speaks, in the evening, at the Economic Club. 

Tuesday:  September industrial production and capacity utilization, is released at 09:15 and the Bank of Canada releases it’s interest rate decision. 

Wednesday:  September CPI and September housing starts, both released at 08:30,  beige book is released at 02:00 and, Kansas City Fed President Hoenig speaks. 

Thursday:  September leading indicators are released at 10:00, October Philadelphia Fed Business Survey is released, at high noon. 

Friday:  We hear from both Chairman Bernanke and St. Louis Fed President Pool.  
 
The US Dollar index seems to be in search of a bottom.  Right now, it appears that this market believes that it has found a short-term bottom, at 77.88, a level tested in the Thursday session.  There are too many US Dollar-bears prowling around, and this makes us very uncomfortable.  The chart looks as though it will again test the highs of the recent rally, at 78.80; so long as the US Dollar index stays above 77.969 for Monday, 77.999 for Tuesday, 78.013 on Wednesday, 78.8013 Thursday and 78.072 on Friday.  The stochastic indicator and the RSI have just issued a buy-signal.  The Thomas DeMark Expert indicator, is issuing a continued sell-signal, at oversold levels and our own indicator is curling to the upside, but no buy-signal as yet.  The 5-period exponential moving average is at 78.284.  The top of the Bollinger band is at 79.268 and the lower edge is seen at 77.545.  The weekly chart looks as though we are either forming a bear flag or, we are trying to form a bottom.   It certainly isn’t clear which it is, at this time.  The indicators are oversold, but have not issued anything of value.  77.58 is the number to write down and to watch.  Should that number fail to support this market, we will drift lower.  The question is, at what level will the prolific shorts begin to feel uncomfortable?  On the monthly chart, a close above 80.90 would scare us if we were short.  On the weekly chart, a close above 81, would be enough to cause us to cover and, on the daily chart, 79.009. 
 
The Euro left a doji candle in the Friday session.  As you know, doji candles are a sign of indecision and perhaps, a change of direction.  The rally in the Thursday session failed to remove the recent high.  The stochastic indicator, the RSI and our own indicator, are issuing a sell-signal, leaving only the Thomas DeMark Expert indicator with a buy-signal, albeit, at overbought levels.  The 5-period exponential moving average is at 141.702.  The top of the Bollinger band is at 143.262 and the lower edge is seen at 139.172.  The weekly chart is showing signs of exhaustion.  We have a scary 12-count, which indicates that we are grossly overbought and, that we will retreat.  The stochastic indicator is about to issue another buy-signal, at overbought levels.  The RSI is going flat, near overbought levels and our own indicator is apparently confused, and going flat.  The Thomas DeMark Expert indicator is overbought and going sideways.  We have a downtrend line on the chart at 142.416.  If we can’t clear that level on a closing basis, expect to see a retreat, taking us back to 138.76.  The monthly chart is overbought and we are getting a sell-signal, from the RSI and our own indicator.  The stochastic indicator will issue a sell-signal, but as of now, it has not done so.  The Thomas DeMark Expert indicator is just going flat.
 
The Canadian Dollar continued its journey to life-of-contract highs, in the December contract.  We see signs of exhaustion, but nobody told the market that.  The Stochastic indicator and the RSI are grossly overbought and yet, continue to issue a buy-signal.  Our own indicator is confused and not issuing a signal.  The Thomas DeMark Expert indicator is going sideways, at neutral.  The 5-period exponential moving average is at 102.18.  The top of the Bollinger band is at 103.22 and the lower edge is seen at 97.25.  The weekly chart is amazing in its steepness.   Both the RSI and the stochastic indicator are overbought, and going sideways.  The Thomas DeMark Expert indicator is issuing a sell-signal; our own indicator is not issuing anything of value.  The monthly chart is as overbought as are the other time-frames, only that on this chart, solely the Thomas DeMark Expert indicator is issuing a sell-signal; all the rest continue to issue a buy-signal.
 
The S&P 500 had a slight swoon in the Thursday session, after printing new life-of-contract highs.  All of the loss from the Thursday session was regained and the index closed, up on the day, tacking on about 6 points into the close of the session, in about 10 minutes.  This last minute surge in the index renewed the buy-signal, as issued by the stochastic indicator, albeit, at overbought levels.  Our own indicator and the RSI are also issuing a fresh, buy-signal.  The Thomas DeMark Expert indicator is issuing nothing, simply going sideways, at overbought levels.  The 5-period exponential moving average is at 1570.40.  The top of the Bollinger band is at 1588.04 and the lower edge is seen at 1506.63.  The weekly chart shows that we have closed higher in the past five weeks, without missing a beat.  Unfortunately, we are now at a 10-count, which shows that this market is grossly overbought.  The indicators are all curling over to the downside.   This is the third monthly advance for this index.  The indicators on the monthly chart are all overbought, but none is pointing lower.  Should this index finally retreat, we expect it to find support at 1533; should that level fail, then look for 1506.
 
The NASDAQ 100 has a 10-count on the daily chart.  This market was on a rally tear for the entire Friday session, leading the S&P 500 higher.  The stochastic indicator, our own indicator and the RSI are all, grossly overbought and continue to issue a buy-signal; only the Thomas DeMark Expert indicator is issuing a solid sell-signal…  The 5-period exponential moving average is at 2187.40.  The top of the Bollinger band is at 2225.03 and the lower edge is seen at 2014.99.  The very-short uptrend line is at 2161.43 and the slightly longer one is at 2173.90; both for the Monday session.  The weekly chart looks like a pole, with signs of exhaustion.   The stochastic indicator and the Thomas DeMark Expert indicator are both issuing a sell-signal, from overbought levels.  Our own indicator is curling over to the downside, but has not issued a sell-signal.  The RSI is overbought and, pointing higher.  The monthly chart has a scary 11-count, and signs of exhaustion.  The Thomas DeMark Expert indicator has issued a sell-signal.  All the other indicators are at grossly overbought levels, but continue to point higher.   This index has been the leader and we suppose that it will need to continue to the upside, to keep the market from retreating.  Perhaps, the upside bias has been because this index does not have the exposure to financials that the S&P 500 does.  This index is the absolute leader in this multi-week rally, leading the S&P 500 to new highs.
 
The Russell 2000 has not made new highs, although in the Thursday session, it came fairly close to the old high.  The Friday session was an inside day for this index, which has underperformed the others.  We continue to trade above the uptrend line, which is at 836.20, for the Monday session.  The stochastic indicator is issuing a buy-signal, at overbought levels.  The RSI has a gentle upswing to it and is approaching overbought levels.  Our own indicator is curling to the upside but, no buy-signal.  The Thomas DeMark Expert indicator is issuing a solid sell-signal, with lots of room to the downside.  The 5-period exponential moving average is at 846.72.  The top of the Bollinger band is at 862.06, and the lower edge is seen at 791.23.  The weekly chart shows that this index closed modestly lower for the week.  The indicators are all curling over and appear to be getting ready to issue a sell-signal.   The indicators for the monthly chart, are uniformly issuing, a buy-signal…..go figure!
 
The Continuous Commodity Index cash enjoyed a rally in four of the five sessions, this past week.  Friday’s session did leave a doji-candle on the chart, which tells us that this rally may need to take a rest.  The indicators are all curling over, but none has issued a sell-signal.  The 5-period exponential moving average is at 442.25.  The top of the Bollinger band is at 451.36 and the lower edge is seen at 433.45.  The chart tells us that it is important for this index to stay above 436.88 or, risk a return to the 425 level.  The weekly chart is overbought; yet, the stochastic indicator and the RSI, continue to issue a buy-signal.  Both the Thomas DeMark Expert indicator and our own indicator, are not in agreement with that finding.  We see signs of exhaustion.  The uptrend line is at 435.45, on the weekly chart.  The monthly chart looks toppy, and has a scary 15-count.  The indicators are uniformly overbought; only our own indicator is issuing a sell-signal. 
 
December cocoa has a 9-count on the daily chart, with a long-tailed candle, resulting from the Friday session.  The stochastic indicator is grossly oversold and continues to issue a sell-signal.  The RSI is curling to the downside, as is our own indicator.  The Thomas DeMark Expert indicator is going sideways, near neutral levels.  The 5-period exponential moving average is at 18.33.  The top of the Bollinger band is at 20.88 and the lower edge is seen at 17.59.  We closed right on the uptrend line, on the weekly chart.  All the indicators continue to point lower, issuing a uniform sell-signal, basis the weekly chart.  On the daily chart, we would not like to see 18.10 broken, unless you would like the market to trade down to 17.50.
 
March sugar left a doji-like candle on the chart as a result of the Friday session.  The downtrend line for the Monday session is at 9.87.  The uptrend, for the Monday session is at 9.62 and a longer line is at  9.57.  The stochastic indicator, our own indicator and the RSI are all going sideways, giving us no signal.  The Thomas DeMark Expert indicator is issuing a solid buy-signal.  The 5-period exponential moving average is at 9.80.    The top of the Bollinger band is at 10.25 and the lower edge is seen at 9.57.  The weekly charts show that we are range-bound, with a long-term downtrend line, at 10.14 and an uptrend line at 9.72.  The indicators in this time frame, are less unified.  The stochastic indicator is issuing a sell-signal, but getting somewhat flat, as is the RSI.  Our own indicator is issuing a buy-signal and the Thomas DeMark Expert indicator: a sell-signal. Thus, you can see we have some stark divergences in the weekly chart.  By next Tuesday, we believe that the market will resolve the direction of March sugar.
 
December coffee continued it rally, finally printing 140.80 in the Friday session, before profit-takers appeared.   This drought-driven rally began in September and has continued, without much pause.  The stochastic indicator and our own indicator are both curling over to the downside, but have not issued a sell-signal.  The RSI is going sideways and the Thomas DeMark Expert indicator is issuing a buy-signal.  The 5-period exponential moving average is at 136.54.  The top of the Bollinger band is at 139.95 and the lower edge is seen at 126.45.  We do have a scary 9-count on this chart, so we could see a retreat, fairly soon.  The weekly chart is showing signs of exhaustion.  The indicators are rolling over to the downside, but have not issued a sell-signal.  We do have the completion of the “W” pattern, although it indicates that we could go, a tad higher. Both the weekly and the monthly charts look like poles; so, be careful. 
 
November Frozen Concentrated Orange juice traded, limit-up, on the release of the USDA’s crop report.  Once the news was released, the shorts covered, propelling the market higher, and then, the market drifted back into reality.  The indicators are uniformly issuing a buy-signal and are at, or near- overbought levels.  The 5-period exponential moving average is at 139.05.  The top of the Bollinger band is at 143.31 and the lower edge is seen at 120.56.  We have signs of exhaustion and we did trade above the Bollinger band, closing right on the upper edge.  The uptrend line for the Monday session is 135.04.  The weekly chart looks as though we could rally towards 160.50; however, we are far too overbought to accomplish that, at this time.  The stochastic indicator, the RSI and our own indicator are all issuing a continued buy-signal, with plenty of room to the upside.   The Thomas DeMark Expert indicator is curling over to the downside, at overbought levels.  The daily chart looks as though we could have an inverse head-and- shoulders, bottom pattern.  This would indicate that we have room to the upside. 
 
December cotton responded to the USDA crop report, with a very modest rally.  We seem to be range-bound, between 62.17 and 64.60.  The indicators are all, uniformly, issuing a continued buy-signal, but we will need to see a close above the 64.60 level, to reignite the bulls.  The 5- period exponential moving average is at 63.46.  The top of the Bollinger band is at 66.90 and the lower edge is seen at 62.08.  The weekly chart shows some divergences in the indicators.  The stochastic indicator is issuing a buy-signal; our own indicator a sell-signal, the Thomas DeMark Expert indicator a sell-signal and the RSI is going nowhere, fast.  We saw the market halt the downside movement at a 38% retracement level, when using the Fibonacci numbers.  This past week’s action fell inside the range of the previous week’s action.  The monthly chart shows that cotton is grossly overbought and is trading inside the previous month’s range. 
 
Just in case you hadn’t noticed, crude oil is trading at an annual high.  The indicators, although overbought, continue to point higher, and are issuing a uniform buy-signal.  Both the stock market and the crude oil market are marching higher together, in lock-step.  The 5-period moving average is at 81.47.  The top of the Bollinger band is at 83.41 and the lower edge is seen at 78.52.  Looks like higher prices on the horizon.  The weekly chart underscores the findings of the daily chart.
 
December gold left a doji-candle on the chart, as a result of the Friday session.  The indicators are curling over to the downside, and it looks as though we could have a few days of consolidation or decline, in the yellow metal.  The 5-period moving average is at 747.60.  The top of the Bollinger band is at 758.40 and the lower edge is seen at 723.04.  The weekly chart looks as though higher prices are coming, as gold plows to new highs.  
 

There will be no market letter next week.