The Option Queen Newsletter

Here in the USA, many products that are sold across the border to Canada have prices reflected in both currencies.  In the past, this relationship was so steady as to not affect the sale on either side of the border.  However; today, chaos reigns as the Looney’s assent and the US dollar’s decent have created havoc in these prepriced items.  Perhaps, if the we could just get two stickers, one that says Canada and one that says US we could affix them to these pre-priced articles with little trouble. 
 
The action of the market during the last three-day sell-off was nothing short of amazing.  On Wednesday, we gapped lower and followed thru at depress levels for most of the day.  Thursday, we opened lower and removed Wednesday’s low then managed to rally to positive territory, by the end of the day, only to sell-off slightly into the close. By Friday’s session most traders were ready for the “Friday drink” at about ten in the morning.  The market traded lower making another lower low and again managed to rally back to the unchanged level, only to suffer another onslaught in the closing half hour of trading.  This manic behavior of the market resulted in manic behavior of money managers.  We noticed that as the market dropped, the put sellers returned to the market and bought back their downside risk, by the afternoon, they were selling the risk out again, and in the closing moments, buying it back.  The money makers on those trades were the market makers and those taking other side of the trade.  The funds lost money, big time.  We have yet to hear of the blow up of some hedge funds, but we are sure that we witnessed several blow-ups. 
 
This coming week is an option’s expiration week….oh joy more volatility.  We expect to see erratic trading return to the markets as funds feel the whip-lash of the markets.  By Wednesday of this coming week, we should see the exaggeration of the market peak of volatility.  Please fasten your seat belts for the coming week, remember pregnant women and children should avoid this ride!

Are we oversold yet?  You bet we are, however; that in itself is no assurance that this market will bounce.  We do feel that there is a dead-cat-bounce coming this week which could be another opportunity for you to get out of painful long positions.  We hear the pundits croon to the bulls but we will remain bearish with the belief that we will test, and probably undercut the August lows before a real rally is to be seen. 
 
How does a cheap US Dollar help Americans?  Well, the short answer is that it does and then it doesn’t.  A cheap US Dollar leads to inflation in dollar based commodities for Americans or people whose currency is pegged to the US Dollar, which, naturally is a bad thing.  The good thing is that the cheaper US Dollar makes our products very competitive and cheap to others, thus, we export more stuff, a good thing.  Our trade deficit has been improving because of this phenomenon.  Further, tourism to the US is flourishing.  America is on sale to all but Americans.  So, you see why the spokes people for our government talk about a strong dollar and let it sink while they are speaking.  Do we care?  Not really, so long as we don’t have to import anything or travel.  As to inflation, our government continues to believe that inflation is tame, probably because they don’t have to pay for food, energy costs or real things that the rest of us have to pay for like health care.  Oh, and then there is the problem with the US Dollar’s status as a reserve currency.  That will come into further question as the US Dollar weakens.  Gold anyone? 
 
As we move into an economic slowing period, we need to be aware that if this economy slows, so do the tax receipts paid by people and corporations.  Thus, we get deeper into a hole.  So, we need to rethink our spending behavior.  We need to look at farm subsidies and other pork that is on the Congressional Table.   There comes a time when we don’t need to pay the farmers not to grow products especially when we have a very robust export market for our farm products.  These subsidies were designed to help farmers during the 1930’s “dust bowl” we are far away from that period of history and it is time for us to move on. 
 
Tuesday:  The Bank of Japan releases its interest rate decision…..no change is expected and pending home sales are released. 

Wednesday:  October retail sales are released at 8:30, October PPI is released at 8:30, September business inventories rare released at 10:00 and Dallas Fed President Fisher speaks. 

Thursday:  October CPI is released at 8:30 and the Philly Fed for November is released at high noon. 

Friday: October industrial production and capacity utilization are released at 9:15 and net foreign purchases of US securities are released.
 
On Wednesday of this past week, the US Dollar index gapped lower at the opening and has remained below the gap.  We believe that that gap will be closed.  The gap is from 75.970 to75.620.  Yes, we are over sold and we are beginning to see signs of a rally emerging.  Will that rally be the start of a trend, no, just an oversold bounce.  The stochastic indicator is oversold but the lines are on top of each other telling us that there will be a signal just not now.  Our own indicator is issuing a buy-signal.  The RSI is going flat at oversold levels and the Thomas DeMark Expert indicator is going sideways at neutral levels.  The 5-period exponential moving average is at 75.735.  The top of the Bollinger band is at 78.847 and the lower edge is seen at 75.147.  The weekly chart shows a very steep decline in the market with a 9-count.  We do have a buy-signal as issued by the stochastic indicator, but both the RSI and our own indicator continue to issue a sell-signal.  The downtrend line on the weekly chart is at 80.333.   The monthly chart is showing us that there is some hope for a bit of a rally here.  We believe that there will be a bounce in the US Dollar Index but that it will be just that, a bounce not a turn-a-round for this index.
 
The Euro has left two red-candles on the chart in the past three trading sessions, Thursday’s session left a doji candle.  Yes, the Euro remained higher for the week but opened the day higher than the close of that day.  The stochastic indicator is oversold but going sideways flat, with no signal.  The RSI is going sideways at overbought levels and the Thomas DeMark Expert indicator is flat at neutral levels.  The only indicator that we follow that is issuing a signal is our own indicator which is issuing a sell-signal.  There is an uptrend line which is at 145.430 for the Monday session.  The 5-period exponential moving average is at 146.144.  The top of the Bollinger band is at 147.276 and the lower edge is seen at 140.817.   The weekly chart shows that we continue in a grossly overbought condition, but with no sell-signals.  The monthly chart is telling us that we are overbought and that the stochastic indicator and our own indicator are both issuing a sell-signal.  The RSI is flat and the Thomas DeMark Expert indicator is overbought and going higher.   We continue to believe that this market can return to 142.802, 141.42 and 140.037 without disturbing the upside. 
 
The Canadian Dollar finally took a breather, this past week giving up some of the recent gains.  The retreat started in the Wednesday session and followed thru into the Thursday session.  Friday, there was a rally after a new low for the week was printed.  The indicators that we follow are uniformly issuing a sell-signal.  The 5-period exponential moving average is at 107.37.   The top of the Bollinger band is at 108.76 and the lower edge is seen at 100.66.  There should be some support seen at 103.48 and further support at 101.43.  The weekly chart shows that we had a failure at the top with exhaustion.  The indicators are all issuing a sell-signal from overbought levels.  The monthly chart is in agreement with that finding.
 
The US Dollar/Pound Sterling chart has a huge red-candle on the daily chart as a result of the Friday session.  There is a bearish engulfing candle.  The stochastic indicator, our own indicator and the RSI are all issuing a fresh sell-signal.  The Thomas DeMark Expert indicator is going sideways at neutral.  This really looks like a failure at the top.  Monday will shed some more light on this matter.  The 5-period exponential moving average is at 209.111.  The top of the Bollinger band is at 210.894 and the lower edge is seen at 201.295.   When we look at the weekly chart we see a failure at the top leaving a doji candle on the chart.  The stochastic indicator and the Thomas DeMark Expert indicator are issuing a sell-signal.  The RSI is hovering near overbought levels and our own indicator is curling over, but has not issued a sell-signal.  The monthly chart looks as though we could see a retreat.  The stochastic indicator, our own indicator and the RSI are all issuing a sell-signal.  Only the Thomas DeMark Expert indicator is issuing a continued buy-signal.   This chart looks as though it could take a rest.  The chart continues to look bullish.
 
The real ugliness in the S&P 500 began in the Wednesday session and continued for the remaining days of the week.  The Friday session did see a lower low than seen in the previous session and returned the level of the S&P 500 to levels not seen since September 11, 2007.  It certainly looks as though we will test the August lows, perhaps not on Monday but that we will test the 1375.00 area.  The bearishness of the market is beginning to appear in sentiment readings which, have turned very bearish.  Therefore, we do believe that a bounce in this market will be seen within two days, that bounce should be enough to relieve some of the oversold conditions.  Perhaps, the market is testing the Federal Reserve asking for another rate-cut as was seen the last time the market felt the weight of the bears?  We do not believe that the Federal Reserve will act to stave off a sell-off in the equity market and will only act to prevent chaos rather than a prop for the bulls to lean on.  The stochastic indicator is issuing a sell-signal at oversold levels, the RSI is pointing lower and our own indicator looks as though it would like to curl to the upside but is not issuing anything close to a buy-signal.  The Thomas DeMark Expert indicator is issuing a buy-signal.  The 5-period exponential moving average is at 1488.72.  The top of the Bollinger band is at 1577.33 and the lower edge is seen at 1468.27.  The weekly chart is showing a huge red candle similar is size to that seen on the week of October 19.   All the indicators that we follow herein are issuing a continued sell-signal with plenty of room to the downside.  The monthly chart shows that this has been a really awful month for this index.  All the indicators that we follow are issuing a sell-signal on the monthly chart.  We continue to believe that a bounce is coming, and that bounce will afford you the opportunity to weed thru your portfolios and remove those issues that will become pound puppies and especially those issues that don’t pay dividends.   A prop that will help hold up this market a bit are, dividends.   With money markets paying very low interest, money will be seeking out yield, probably trying to find it in companies that are secure and pay higher dividends than those that can be received on money market funds.  Just in case you wondered, we are below the 200 day moving average.
 
We have a mechanical sell-signal for the NASDAQ 100.  The four issues that have been supporting this index took a spill this past week pushing this index to its limit in the Thursday session.  The selling began in the Wednesday session and continued for the rest of the week.  All the indicators are oversold but none is issuing a buy-signal.  Only our own indicator is curling to the upside but remains away from issuing a buy-signal.  The good news is that we are above the 200 day moving average, well for now we are.  The 5-period exponential moving average is at 2154.90.  The top of the Bollinger band is at 2281.99 and the lower edge is seen at 2097.93.  Last week’s decline in the NASDAQ 100 is the largest decline we have seen in a very long while.  Actually, we would have to go back to 2002 to find anything that comes near that level.  The weekly indicators are uniformly issuing a sell-signal not even near neutral yet, with plenty of room to the downside.  The monthly chart is supporting the findings of the weekly chart.  This chart shows that there is plenty of room to the downside.  Remember, this index has been outperforming in the recent run ups of the market so, it stands to reason that it will outperform on the downside as well.
 
The Russell 2000 has behaved better than it larger capitalization relatives.  This index did not make a lower low in the Friday session.  As you recall the other indices did.  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 807.88.  The top of the Bollinger band is at 857.84 and the lower edge is seen at 788.94.  The weekly chart tells us that we need to continue to be careful.  The indicators are all issuing a continued sell-signal.  The monthly chart continues to warn of lower prices.  When looking at the chart of the Russell 2000 compared to the S&P 500, it is clear that the Russell 2000 out-performed the S&P 500 on the upside until about mid-July when, it began to underperform.  Since that time it approached the level of the S&P 500 only once in August and since that time has remained below the S&P 500. 
 
Here is a shocker:  the Continuous Commodity Index made a fresh life of contract high this past week in the Wednesday session.  The high was 461.06!  The stochastic indicator is indecisive but could issue a sell-signal as early as the Monday session.   The RSI and our own indicator are both going sideways near overbought levels.   The Thomas DeMark Expert indicator is issuing a sell-signal.  The 5-period exponential moving average is at 456.28.   The top of the Bollinger band is at 459.47 and the lower edge is seen at 444.25.  The weekly chart has another sign of exhaustion.  The stochastic indicator has just issued a sell-signal.  The RSI and our own indicator are both going sideways at overbought levels.  The Thomas DeMark Expert indicator is also going sideways but is closer to neutral.  We have a doji candle on the weekly chart which tells us that the market is in a period of transition.  It is likely that we will back and fill or retreat for a while.  The monthly chart is also showing the information which is, consolidation and retreat from extremely overbought levels.
 
March sugar on both Wednesday and Thursday looked as though it was going to try to get above the 10.19-10.20 level.  It failed to do so, causing the market to retreat in the Friday session.  We continue to trade above the uptrend line which is at 9.92 for the Monday session. All the indicators that we follow herein are issuing a sell-signal.  We would be extremely concerned to see March sugar close below 9.83.  The 5-period exponential moving average is at 10.05.  The top of the Bollinger band is at 10.27 and the lower edge is seen at 9.88.  The weekly chart looks better than does the daily chart.  The stochastic indicator, our own indicator and the RSI are all issuing a continued buy-signal.  The Thomas DeMark Expert indicator is issuing a sell-signal.  The chart looks as though this week will define the direction of the next move.  We need to see a close above 10.50 then above 10.85 to start a good rally going in March sugar. 
 
December coffee steadily rallied for the entire week printing higher lows and higher highs.  We do need to see a close above 123.90 to get the bulls back into the ring.  We continue to trade above the uptrend line and we are in position to challenge the 20 period moving average of 123.16.  The indicators are all uniformly issuing a continued buy-signal.  The 5-period exponential moving average is at 121.01.   The top of the Bollinger band is at 129.20 and the lower edge is seen at 117.12.  The weekly chart looks good.  The stochastic indicator and the RSI are both issuing a buy-signal.  The Thomas DeMark Expert indicator is issuing a continued sell-signal and our own indicator is curling to the upside. So long as this market can stay above 118.84 on a closing basis, we will give it to the bull.   For day-traders the number to watch for Monday is 121.50 a number we need to stay above.
 
Frozen Concentrated Orange Juice recovered some of the Thursday losses in the Friday session closing near the highs of the 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 and is oversold.   The 5-period exponential moving average is at 135.90.  The top of the Bollinger band is at 155.78 and the lower edge is seen at 129.44.  We need to see this market close above 136.25 to get the bears nervous.  The market certainly is oversold enough to rally this market back to 142.40 high seen in the Wednesday session.  The problem is that we must stay above 131.30 or risk a return to 125.15 and worse, the lip of the open gap below the market at 119.00.  The open gap is from 119.00 to 116.00.   All the indicators on the weekly chart are issuing a uniform sell-signal.  The chart does not look good and shows that it is likely that we will retreat further.  Therefore we would take the above mentioned levels very seriously and, if long keep our stops tight.
 
December cotton left a very long tailed doji candle on the chart in the Friday session.  The uptrend line is at 63.18 for the Monday session.  The downtrend line is at 64.67.  The stochastic indicator is about to issue a buy-signal.  The RSI is going sideways and our own indicator is in agreement with that finding.  The Thomas DeMark Expert indicator is issuing a solid sell-signal.   The 5-period exponential moving average is at 64.76.  The top of the Bollinger band is at 65.69 and the lower edge is seen at 63.14.  On Wednesday, of this past week, the market tried and failed to break out of the range moving to the upside but failing to keep the gains.   By the week after next, we will see a resolution to this market’s direction.  All the indicators on the weekly chart are issuing a continued buy-signal.  So long as this week is contained, we should be setting up for a very wild week in the week after next.
 
Does she want diamond or say several barrels of crude oil?  Maybe gold instead?  Okay, but it really is getting expensive to buy crude oil.   While the pundits are all waiting for crude oil to hit $100.00 and die we aren’t quite so sure that it will die at that level.  On Wednesday, crude oil traded as high as 98.62 before retreating on profit taking.  The market is trading below the downtrend line which is at 95.43 for the Monday session.  The stochastic indicator is about to issue a buy-signal albeit at near overbought levels.  The 5-period moving average is at 95.76.   The top of the Bollinger band is at 99.31 and the lower edge is seen at 82.71.  The weekly chart shows that we closed above the upper edge of the weekly Bollinger band.  The stochastic indicator on the weekly chart is overbought and is issuing a fresh sell-signal.  The chart looks like the recent rally in crude is a pole which tells us that it can not continue at this pace for much longer.  We certainly wouldn’t short this market buy would be open to buying some puts on this market the next time it rallies. 
 
December gold had an inside day in the Friday session leaving a doji-like-candle on the chart.  The stochastic indicator is overbought and issuing a sell-signal.  We are patiently waiting for the market to retreat before purchasing more of the yellow metal.  We can see this market return to the 814-810 and even 800 levels.  The 5-period moving average is at 827.98.  The top of the Bollinger band is at 842.46 and the lower edge is seen at 736.75.  The stochastic indicator on the weekly chart is issuing a sell-signal.  The weekly chart does look much like crude oil…..a pole.  We have moved very far very fast and need some pause to work off some of this overbought condition.