The Option Queen Newsletter

One benefit of a cheap US Dollar is that it inspires foreign investment in manufacturing in the USA. Tourism is flourishing, and exports are improving, helping soften the effects of this recessionary economy. Many governments and companies stuck with the US currency, generally arising out of heavy exports to the US, are taking this opportunity to use the US currency and convert it into hard assets such as factories, companies and producing properties. These buyers know full well, that they will eventually turn their investments into profits. Some have already turned their investments into profits with cash-flow much greater than the negative cash-flow seen, as the US Dollar declines in value and the interest earned in US Government paper declines with it. Not only are factories and companies being purchased, but farmland, which produces various crops.

Naturally, anybody with a half a brain knows that as food, agricultural commodities, prices increase, the farmland also appreciates in value, this combination of positives creates a cash flow in US Dollars. Foreign holders of excess US Dollars from trade and business can invest in T-Bills, or invest those dollars and buy a piece of America, which would you do? Michigan is a cheap state to buy. The real-estate is cheap, the factories are cheap and the unemployment rate is high with lots of motivated workers.

In today’s world, it isn’t necessary to raise a gun to take control of a country, just buy it!

As to the suggested government’s band aid on an economic arterial mortgage bleed, it won’t work. The patient will die if the hemorrhaging isn’t stopped. Anything that the government tinkers with, generally fails–look at the ethanol scam taking food out of our mouths to inefficiently produce a fuel which is inferior to other bio-fuels. Think about sugar based ethanol, rather than taxing each gallon of sugar-based ethanol brought into this country give a tax credit for this intelligent use of a cheap fuel. What about palm oil or other bio-fuels? Are we being bullied into corn?

January options went off the board on Friday causing some heart-stopping flutters as positions were adjusted for the close. We have heard of “Manic Monday’s” but “Manic Friday’s are less common. We opened firmly higher and then, retreated scaring even the most optimistic of marketeers. The Friday session punctuated the four-day decline of this past week, moving most averages into grossly oversold territory. We are bearishly oversold, and there isn’t a bend or curl to the upside to be found. We finally have seen some fear return to the market, as measured by the VIX, in the Thursday trading session. There needs to be some more bleeding before we see a bounce in the market. No, we are not bullish although we feel that the market will bounce and rally, but in the context of a bear-market-rally, nothing more. On a more pleasant note, the SOX index (Philadelphia semiconductor index) was positive in the Friday session and is forming a rounding bottom. This index gives us some hope that a rally is fairly close at hand. However; the biotech index or the BTK looks awful and continues to issue a sell-signal.

As to interest rates, even if the FOMC pushes rates to zero, they, as a group, can not force institutions to lend. True, lower interest rates will flow into the economy, but those with impending foreclosure will not be there to enjoy the benefits of low interest rates. Lending standards are getting somewhat more conservative, therefore borrowers that are perceived to be risky will not be lent the money, however; those who have maintained their credit ratings will enjoy the lower rates and yes, refinancing will again expand.

Tuesday: The Bank of Japan issues its interest rate decision (no change is expected), OPEC report, the Bank of Canada is expected to cut rates when it announces its interest rate decision, and we continue to see a flood of earnings including Wachovia and Apple.

Thursday: December existing home sales.

The US Dollar index rallied in the Friday session leaving a bullish engulfing candle on the weekly chart. The daily chart continued this past week’s rally ending the session on a positive note. All the indicators that we follow herein are issuing a continued buy-signal. Some of those indicators are approaching overbought levels. The 5-period moving average is at 76.104. The top of the Bollinger band is at 77.714 and the lower edge is seen at 75.177. The daily chart shows an 11-count. It is beginning to look as though we could be putting in a “W” pattern on the weekly chart. The “W” patter is very bullish for the US Dollar index. At the moment, we do not have that pattern but a removal of 77.85 would confirm the “W.” There is one additional rule that must be followed; that we do not remove the low of 74.65. Should that low fall, the pattern is negated.

The chart of the British Pound Sterling looks awful. We saw the currency gap lower in the Friday session and remove the previous lows taking us back to levels not seen since March. The low of Friday removed the March low and opens the door to greater declines. All the indicators that we follow herein are issuing a solid sell-signal with plenty of room to the downside. The 5-period moving average is at 195.74. The top of the Bollinger band is at 199.21 and the lower edge is seen at 194.40. The weekly chart has an 8-count and looks as though, it will try to defend this level. The indicators that we follow on the weekly chart are uniformly issuing a buy-signal. We have broken a long-term uptrend line and are currently below our 50-day moving average and 50-week moving average. We do see some good support in the congestion area at 190 to 192. The monthly chart is pointing lower and is above the long-term uptrend line. The downtrend line on the weekly chart is at 199.41, a level that must be removed by Friday to change the direction of this chart which is, obviously, down.

The Canadian Dollar failed to remove the low seen in the Thursday session. The downtrend line for the Canadian Dollar for the Monday session is at 97.99. The stochastic indicator the RSI and our own indicator are all pointing higher. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period moving average is at 97.74. The top of the Bollinger band is at 102.97 and the lower edge is seen at 96.59. The weekly chart is less friendly than is the daily chart. All the indicators that we follow for the weekly chart are pointing lower. The weekly chart gives us reason to believe that the Canadian Dollar could return to the 94.99 level. The monthly chart looks equally as sour as does the weekly chart. Remember, this week we will hear from the Bank of Canada on Tuesday, for its interest rate decision.

The S&P 500 took another dive to probe the downside looking for support which, it found at 1316.00. The stochastic indicator is going to issue a buy-signal possibly as early as the Monday electronic trading session. Our own indicator is curling to the upside. The Thomas DeMark Expert indicator continues to point lower and the RSI is loosing steam to the downside but pointing lower. The 5-period moving average is at 1369.88. The top of the Bollinger band is at 1539.32 and the lower edge is seen at 1329.65. Monday was the only day of this past week that this index was able to close above its opening level. The rest of the week looks like a waterfall to the downside. All the indicators on the weekly chart are pointing lower, all, are grossly oversold. We would expect to see a rally in the context of a bear market, to relieve some of the oversold condition. These bear-market rallies can be very aggressive giving the appearance of a resurgence of the bull market, but it is not. The downtrend line on the daily chart for the Tuesday session is at 1392.22 and for the weekly chart the downtrend line is at 1485.03. The monthly chart is confirming the findings of the other time-frames. The indicators are all pointing lower. The chart shows that we should find some support at 1300 or so, a previous congestion level seen on the chart.

The NASDAQ 100 behaved better than its big brother the S&P 500. Perhaps the SOX index exerted some positive effect on this index, remember, that index was up in the Friday session. The downtrend line for the Tuesday session is at 1892.29. The stochastic indicator, our own indicator and the Thomas DeMark Expert indicator have just issued a buy-signal on this index. The 5-period moving average is at 1890.70. The top of the Bollinger band is at 2216.70 and the lower edge is seen at 1806.86. Unfortunately, the weekly chart is not favorable. All the indicators that we follow, although oversold, are pointing to lower levels. We haven’t removed the August lows as yet, but we seem to be at a point where we will see that level challenged. That level is at 1813.00. Just for a point of information the March lows for the NASDAQ 100 are at 1704.75. The monthly chart looks awful and highlights the huge retreat seen in the past three months, in this index. All the indicators on the monthly chart are pointing lower.

The Russell 2000 retreated under the weight of the downside pressure seen in the Friday session. The stochastic indicator has just issued a buy-signal. Our own indicator is going sideways and the Thomas DeMark Expert indicator and the RSI are both pointing lower. The 5-period moving average is at 694.66. The top of the Bollinger band is at 816.28 and the lower edge is at 661.38. The downtrend line for the Tuesday session is at 694.82. The weekly chart shows that we closed far below the lower edge of the Bollinger band telling us that we can not stay here for very long. Either this market will rally or, the band will expand to accommodate this increased volatility. All the indicators that we follow are oversold and pointing lower. The last time this index was this low was on the week of November 18, 2005. The monthly chart tells us that this is the worst month this index has had going back to 2002. The indicators on this time-frame continue to point lower.

The Continuous Commodity Index printed a life-of-contract high this past Monday. We saw a decline for the remaining days of the week but the sessions became narrower each day. As a result of these narrowing days we are forming a pennant or a coil, from which we will break. All the indicators that we follow are uniformly issuing a continued sell-signal. The 5-period moving average is at 492.64. The top of the Bollinger band is at 499.10 and the lower edge is seen at 469.17. The weekly chart shows a doji candle. We also have a 9-count on the weekly chart. All the indicators that we follow herein are issuing a sell-signal, all from overbought levels. We have a wild 18-count on the monthly chart with definite signs of exhaustion. The indicators are mixed for this time-frame but all, are overbought.

March sugar was wild this past week actually trading as high as 13.09 in the Thursday session. The range of sugar, in the past two-days has been amazing. All the indicators that we follow herein are issuing a fresh sell-signal. The 5-period moving average is at 11.86. The top of the Bollinger band is at 12.16 and the lower edge is seen at 10.42. We have a 9-count on the daily chart. The weekly chart looks like sugar has broken to the upside out of a rounding bottom. The indicators are somewhat mixed. The Thomas DeMark Expert indicator is issuing a sell-signal, the stochastic indicator is issuing a sell-signal, our own indicator is issuing a buy-signal and the RSI is pointing higher at overbought levels. The monthly chart is overbought and pointing higher.

March cocoa took a spill in the Friday session. Keep an eye on the British Pound this week. All the indicators that we follow are uniformly issuing a sell-signal. The 5-period moving average is at 21.67. The top of the Bollinger band is at 22.16 and the lower edge is seen at 20.25. The weekly chart has signs of exhaustion. The stochastic indicator, our own indicator and the RSI are all issuing a fresh sell-signal. The Thomas DeMark Expert indicator is issuing a continued buy-signal at overbought levels. This market is overextended and in need of a rest. The fly in the ointment will be the British Pound Sterling which affects the arbitrage between the New York contract and the London contract.

This past Tuesday, March coffee rallied to 139.40 giving hope to the bulls for a run to the upside. Alas, that fairy tale ended by the end of the session. For the rest of the week, March coffee steadily declined. The 5-period moving average is at 135.34. The top of the Bollinger band is at 137.85 and the lower edge is seen at 131.26. All the indicators that we follow are issuing a continued sell-signal. The uptrend line for the Tuesday session is at 132.92, it is important for this market to remain above this line. The weekly chart shows the dramatic failure at the highs this week. All the indicators that we follow herein are issuing a sell-signal. The monthly charts verify the findings of the weekly chart, both issuing caution on this market.

Friday’s session in May Frozen Concentrated Orange Juice dynamically increased the range of the day’s trading. We saw a high of 141.75 and a low of 135.00, completing the wild swing in the Friday session. All the indicators that we follow herein are issuing a sell-signal. The 5-period moving average is at 138.36. The top of the Bollinger band is at 153.66 and the lower edge is seen at 130.96. The weekly chart has a different look to it than does the daily chart. We seem to be consolidating. The week’s trading left a doji candle on the chart. The stochastic indicator is about to issue a buy-signal, the RSI has just turned positive and our own indicator is curling to the upside but has not issued a signal at this time. The Thomas DeMark Expert indicator is issuing a sell-signal. We would use 133.50 as a sell-stop if long or 141.75 as a buy-stop if short.

March cotton is tired and has signs of further exhaustion. The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal, albeit, at overbought levels. The 5-period moving average is at 71.38. The top of the Bollinger band is at 72.41 and the lower edge is seen at 65.32. The weekly chart is exhausted and all the indicators that we follow are issuing a sell-signal. The market is consolidating at these levels.

Brrr its cold outside and crude oil, well that is reasonable, for a change. The stochastic indicator and the RSI are both oversold and are issuing a buy-signal. The 5-period moving average is at 91.09. The top of the Bollinger band is at 99.76 and the lower edge is seen at 88.63. So long as we stay above 88.97, we will rally to the upside. A breech of the 88.97 level will lead us to 85 and then 82. The indicators on the weekly chart are still pointing lower. 85.82 is a danger point for crude. Should we close below that level we will revisit the 78 level and possibly even the 70 area. The monthly chart shows that we continue on the upswing staying above the uptrend line. We do see a liability to the 78 range.

On Tuesday, February gold hit a high of 916.10. The market the retreated and continued that retreat for most of the week printing lower lows. The stochastic indicator is curling to the upside but has not issued a signal. The RSI is going sideways at neutral. The 5-period moving average is at 890.04. The top of the Bollinger band is at 922.16 and the lower edge is seen at 801.58. The weekly chart looks as though this market needs to rest. The indicators are rolling over to the downside and have issued a sell-signal. We have a failure at the top but we do have higher lows for the week. A return to 848.00 is reasonable and quite likely. The monthly chart continues to look positive however, the indicators are curling over to the downside from overbought levels.