The Option Queen Newsletter

The good, the bad, and the ugly will appear this week probably inspiring a retesting the August lows of 1375 +/-.  Not only will that level be tested, but as we near that level, the market will press the limits to probe for resting sell-stops. This, naturally, will cause the market to undercut the August lows, after which it will “V” bottom and rally above that August low level.  Well, that will be downside action. No, this does not indicate that a bottom has been found but rather that a trade is being exploited.

The stimulus for this action will be the spate of earnings releases highlighting the financials (Citigroup, JP Morgan, Intel, State Street, Bank of NY, Washington Mutual, IBM, Merrill Lynch, General Electric, etc) along with the PPI, CPI, Beige Book, retail sales and, of course, housing. One of these numbers will cause the market to spill to the depths of the August lows. We clearly do not have enough negative sentiment to call the bottom yet. Further, it is really not easy to call the exact bottom; we don’t believe that we can, so it is more important to find the area where some support will be found. The fact that we are at a short-term bottom in no way says that we have become bullish. Rather, we are aware that even in bear markets there are rallies and that is exactly what we are looking for from this market.

As to the Fed, which meets on January 29 and 30, we believe that Chairman Bernanke has signaled that there will be a reduction in the interest rates and that the reduction could be larger than the previous one. The stimulation that will be seen from such a rate reduction will take time to filter into the economy. But before you run out and buy all those foreclosed homes and “cheap” stocks, think the situation out. As the FOMC reduces the cost of money, they feed the fuel of inflation and the demise of the US Dollar, while stoking the flames of the next bubble. It is assumed that the slowing economy will slow inflation enough to make it less problematic, again that is the economist’s assumption and justification for fueling inflation. The question should be; will the institutions lend money and at what cost to the borrowers? If and when the FOMC does its hacking job on interest rates, remember this is done to save the economy, not because it is so wonderful. They are scared and trying to halt the epidemic of failures. We pointed out two weeks ago, that municipalities and state tax coffers will feel the economic slow-down and the faltering real-estate market faster than the IRS will see tax receipts retreat. This is not good for you or your neighbor. Before celebrating consider the reasons for this rate cut!

We advise our readers to take advantage of many of the high quality high yielding preferreds offered by many companies. These securities act as bonds but continue to enjoy the preferential tax treatment of a dividend. If you buy the yield, do not become fixated on the price of the preferred, but rather fixate on the quality of the company’s balance sheet. There are some juicy tidbits out there, so, take your yield starved portfolio to preferred.

Electronic trading glitch….wow….what a glitch on the ICE US platform which failed the electronic traders in Cotton on Friday. About an hour before the close of the open-out-cry session of cotton which is at 2:15PM EST, the ICE Futures US electronic platform in cotton, crashed and burned causing a cyber-storm of confusion in a market that was trading near and at the 3.00 limit price limit. Many traders, off the floor, didn’t know if their trades were filled or the spreads executed or where they stood. Many traders off floor didn’t even know that the platform crashed! ICE management announced that electronic trading would be suspended until the opening of the open-out-cry session on Monday at 10:30. By later in the afternoon that decision was changed, and an announcement was made that trading would resume on schedule Sunday evening. With the approach of the death of the open-out-cry markets for futures contracts traded at the ICE US exchange scheduled to go dark on March 1, 2008, one really worries what the traders will do should this occur when there is no ring to aid the market in executions. This is a real concern that we all need to note. Perhaps, it is a good time for ICE US to rethink closing all the futures rings.

Tuesday: December retail sales are released at 8:30, December PPI is released at 8:30, and the New York Federal Reserve Bank’s manufacturing survey for January is released at 8:30.

Wednesday: December CPI is released at 8:30, December industrial production and capacity utilization and the January housing market index is released at 1:00.

Thursday: December housing starts are released at 8:30, Philadelphia Federal Reserve Bank survey is released at 10:00 and Federal Reserve Chairman Bernanke testifies on the “Hill.”

Friday: The bond market closes early in advance of the Martin Luther King Holiday.

The US Dollar Index is coiling with resistance at 76.394 and support at 75.650 both for the Monday session. The Thomas DeMark Expert indicator is issuing a fresh sell-signal however; the other indicators that we follow herein are somewhat confused. The 5-period moving average is at 76.164 and the 50 day moving average is at 76.168. The top of the Bollinger band is at 78.113 and the lower edge is seen at 75.377. We are in the clouds of the Ichimuko chart. Naturally, we continue below the clouds on the weekly chart. The stochastic indicator and our own indicator are both issuing a buy-signal on the weekly chart. The Thomas DeMark Expert indicator is issuing sell-signal. It looks as though, that is about three weeks we will have a point of inflection, so long as we remain in this coiling pattern. We feel the push and pull of the financial data this week, probably giving us more clues as to which side of chart the market will be pushed. We are at a very tenuous point from which we could break to the downside or the upside. The chart isn’t helping much but does warn us that should we close below 75.44, we will go to 74.76 and naturally challenge and under cut 74.65. On the upside, should we close above 77.85, we will be in a position to rally to 78.80.

The Euro opened higher, trading near the highs of the Thursday session at 148.15, but when it failed to equal Thursday’s high, it retreated. The market needs to close above 148.30 if, you are going to see a challenge of the November highs and a run to that difficult 150.00 target. At this time, the market seems to be having trouble making any upside progress. The stochastic indicator is overbought and curling over to the downside but has not issued a sell-signal. The RSI is going flat near overbought levels and our own indicator is curling over to the downside without issuing a signal. Only the Thomas DeMark Expert indicator is clearly issuing a buy-signal. The 5-period moving average is at 147.278. The top of the Bollinger band is at 1490.02 and the lower edge is seen at 1427.73. Clearly, a break and close below 1463.80 will open the door to the gap of 144.70 to 144.25. The weekly chart shows us that should the market break the 143.270 level; the market will have a liability to 134.189…..yikes! Advise: be careful and keep your stops tight! Currently, the market is above the clouds.

The British Pound Sterling looks worse than the US Dollar index, much worse however; at the moment we do have an 8-count and we are in a position of being soooooo oversold, that we just might get a bounce, out of this currency, within a day or so. Not one of the indicators that we follow herein is issuing a buy-signal, but they have stopped trending. The stochastic indicator, our own indicator and the RSI are grossly oversold and continue to point lower. The Thomas DeMark Expert indicator is going sideways. The 5-period moving average is at 195.87. The top of the Bollinger band is at 202.34 and the lower edge is seen at 193.98. The daily chart of the Pound Sterling remains below the clouds. The downtrend line is at 197.81 and we need to close above that level to change directions. The indicators on the weekly chart are grossly oversold, however are not issuing a buy-signal. Only the Thomas DeMark Expert indicator is issuing a buy-signal. The British Pound closed below the lower edge of the Bollinger band, a level from which it will bounce. Look for further support at 191.92.

The Canadian Dollar is approaching the lows of December 14, 2007 of 97.65. In the Friday session, the Canadian Dollar gapped lower and left a doji candle on the chart. This candle tells us that the market is in transition that both bulls and bears failed to win the competition in the Friday session. Frequently, a change of direction follows this formation. We do have 9-count on the bottom and we are set-up for a possible buy-signal within a day or so. The stochastic indicator, our own indicator and the RSI are all oversold but continue to point lower. The Thomas DeMark Expert indicator is mildly tilting upward, not a resounding buy-signal. The downtrend line is at 98.98 for the Monday session. The 5-period moving average is at 99.05. The top of the Bollinger band is at 102.65 and the lower edge is seen at 97.52. The weekly chart highlights the importance of 97.65; a level the market must stay above or risk a return to 94.73. The indicators are uniformly issuing a sell-signal on the weekly chart. For the market to return to the positive view, it must close above 102.55. The monthly chart is in agreement with the daily and the weekly time-frames.

The good news on the S&P 500 chart is that the Friday session did not remove the low of the Wednesday session. We have a 9-count as of the Thursday session. The stochastic indicator is just oversold, but has just issued a fresh sell-signal. The RSI is pointing lower and our own indicator is curling over to the downside, but is not issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a very mild buy-signal. The 5-period moving average is at 1411.78. We are below the clouds on the daily chart, using Ichimuko studies. Friday’s session saw a lower low than on the Thursday session along with a lower high. The top of the Bollinger band is at 1582.13 and the lower edge is seen at 1519.58. The buy-set-up is at 1436.00. The 50 day moving average has closed below the 200 day moving average, not good for the bulls. The downtrend line on the weekly chart is at 1488.25. We did see the S&P 500 close below the uptrend line on the weekly chart leaving us to believe that the lows of August will be removed on the next spill to the downside. To turn this chart around to positive, we need to see a close above 1494.50 by this coming Friday’s session. All in all, the market is oversold and will bounce within a day or so but that just might serve as a good selling opportunity.

The NASDAQ 100 slid in the Friday session but did not remove the lows of the Wednesday session. The stochastic indicator and the RSI are both oversold yet continue to issue a sell-signal. Our own indicator is curling to the downside and will, within a day or so, issue a sell-signal. The Thomas DeMark Expert indicator is going sideways at neutral. The 5-period moving average is at 1949.30. The top of the Bollinger band is at 2205.45 and the lower edge is seen at 1909.24. We have a 9-count on the index issued on Thursday. When looking at this chart, you will note that the decline has been too steep to continue at this rate. Either we have to go sideways for a while, to relive some of the steepness of this decline, or perhaps a rally is needed to correct these excesses. The indicators on the weekly chart are uniformly negative and, are at oversold levels. The monthly chart is equally negative although shows more room to the downside.

The Russell 2000 looks awful. The market is trying to stabilize here, at lower levels. We did not see the Wednesday low of 692.00 removed in either the Thursday or Friday session. The stochastic indicator, our own indicator and the RSI are all at oversold levels and issuing a fresh sell-signal. The Thomas DeMark Expert indicator is going sideways at neutral. The 5-period moving average is at 715.06. The top of the Bollinger band is at 812.22 and the lower edge is seen at 697.33. The very least this market need is to see a close above 729.00 to open the door to 740. The weekly chart continues to look negative. We have an 11-count which tells us that we should have a bounce. The Russell 2000 closed below the lower edge of the weekly Bollinger band and probed the 200 week moving average, where if seems to have some brief support. This market continues to look awful, but we do expect to see some relief to this extremely oversold market. This does not mean that we are bullish but rather that we think the market will rally and then, retreat again.

The Continuous Commodity Index futures and cash both made a life of contract high in the Friday session. Naturally, we are above the Ichimuko clouds, on the daily chart. The stochastic indicator, the RSI and our own indicator are all at overbought levels and are issuing a fresh buy-signal. The Thomas DeMark Expert indicator is neutral going sideways. The 5-period moving average is at 487.32. The top of the Bollinger band is at 494.11 and the lower edge is seen at 461.68. The weekly chart is showing signs of exhaustion. We do have an 8-count telling us that we are, overbought. The stochastic indicator is issuing a fresh buy-signal, the RSI is slopping higher and our own indicator is going sideways. Only the Thomas DeMark Expert indicator is issuing a sell-signal. The monthly chart has a scary 18-count! The indicators are the same as they are on the weekly chart. The market is bullishly overbought and seems to be continuing in that direction.

March sugar rallied to 11.72 and quickly retreated closing below the opening level leaving a large red-candle on the chart. Although, sugar did not remove Thursday’s low in the Friday session the market failed at the highs. All the indicators that we follow herein are issuing a uniform sell-signal. The 5-period moving average is at 11.38. The top of the Bollinger band is seen at 11.65 and the lower edge is found at 10.25.This market seems to be trying to break to the upside but has failed to do so. Perhaps, it needs some time to back and fill before trying to trade up to 11.91, where it should find very heavy resistance. The uptrend line is at 10.90 for the Monday session, so, sugar could retreat to that level without disturbing the bulls and burn off some of its overbought condition. The indicators on the weekly chart are also issuing a sell-signal. The candle left on the weekly chart is a doji, which tells of the push and pull seen in the market this past week.

March cocoa poked its head higher in the Friday session, extending the range of the market. We have an 8-count as a result of that session. The stochastic indicator is overbought and curling over to the downside but has not issued a sell-signal. Our own indicator is about to issue a sell-signal. The RSI continues to point higher and is approaching overbought. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period moving average is at 21.55. The top of the Bollinger band is at 21.81 and the lower edge is seen at 20.27. The weekly chart shows signs of exhaustion. The stochastic indicator, our own indicator, and the RSI are all at overbought levels but continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. We are totally overextended on the upside but appear to be going higher.

March coffee probed the upside in the Friday session but retreated below its opening level, by the close of trading. The stochastic indicator, the RSI, and our own indicator are all uniformly issuing a fresh sell-signal. The Thomas DeMark Expert indicator is issuing a continued buy-signal approaching overbought. The high of the Friday session was above the upper Bollinger band which served as resistance. The 5-period moving average is at 134.91. The top of the Bollinger band is at 136.80 and the lower edge is seen at 131.50. The weekly chart of March coffee looks good although we do have a 9-count. The stochastic indicator, the RSI and our own indicator are all issuing a continued buy-signal. The Thomas DeMark Expert indicator is not issuing a signal. So long as March coffee does not close below 130.60, we would positive on this market.

May Frozen Concentrated Orange Juice seems to have put in a short term bottom in the Thursday session when it printed 133.50. All the indicators that we follow are uniformly issuing a buy-signal. The 5-period moving average is at 136.51. We would not be long of this market under that level. The top of the Bollinger band is at 155.43 and the lower edge is seen at 133.67. The weekly chart is painting a different picture and warns, that we could return to 131.75 with out much trouble. The indicators are uniformly issuing a sell-signal with plenty of room to the downside. Should 131.75 fall, in a bear raid, we would expect to see a run for the lip of the gap at 121.80. The gap on the chart is from 121.80 to 115.50. Although the daily chart looks positive, we would tread with care in this market.

March cotton closed limit up in all expirations in the Friday session. We had a positive crop report in the morning and the market opened the open out cry session at 68.01 and traded higher in those opening moments. The market went sideways until the lunch hour when, a rally began taking the market to the limit highs. The stochastic indicator, the RSI and our own indicator are all uniformly issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. We have a 12-count on the day and signs of exhaustion. The 5-period moving average is at 68.86. The top of the Bollinger band is at 70.38 and the lower edge is seen at 64.39. The indicators on the weekly chart are all overbought and continue to point higher.

Crude oil retreated for most of this past week. The downtrend line for the Monday session is at 96.21. Both the RSI and the stochastic indicator are issuing a continued sell-signal. The 5-period moving average is at 94.698. The top of the Bollinger band is at 99.992 and the lower edge is seen at 89.04. The 20-period moving average is at 94.486. Notice that the 5-period moving average is about to cross the 20-period moving average triggering a short-term sell-signal. The indicators are somewhat oversold and, although there is no buy-signal at this time, are curling to the upside. The indicators on the weekly chart are clearly pointing lower. For the bulls, it is important for crude oil to stay above 86.10 or risk a return to the 69.60 area.

February gold hit $900 before profiteers stepped in and sold. The candle left on the chart is a doji candle warning us that this market is in transition and warning that we might see a change of direction. The indicators we follow are overbought and continue to point higher, although, they seem to be losing steam on the upside. The 5-period moving average is at 883.06. The top of the Bollinger band is at 905.84 and the lower edge is seen at 774.28. The rally in fold has bee a stead climb using the 5-period moving average as good support for its assent. The indicators on the weekly chart are all pointing higher. We did see gold close above the upper ledge of the weekly Bollinger band and we know that it can not stay there for very long. Thus we would expect to see gold back and fill a bit before the next leg to the upside is seen.