The Option Queen Newsletter

We are scared–the most scared we have ever been about, the market. We survived the 1987 crash and all the crashes that followed. We remember the 1970’s and the problems that were seen in the middle of that decade. Today’s problems dwarf the problems seen during the time that we were intimately involved with the markets. That includes a casual interest in the markets in the 70’s and a professional involvement beginning in 1981. That is a long time to be intimate with the markets and now, and only now, is a time when we have become scared.

In the prior market meltdowns, retreats looked like crashes, but the markets had firm footings underneath the chaos of irrational depression. Today, a firm pillar of the market is being put to the test of stress. We have huge deficits, trade imbalances, that although they are improving, continue in a deficit. We are in an economic slowdown and probably in a recession. Our currency although improving lately, is under pressure. The basic costs of necessities of life are increasing. City, state and Federal governments will be run with less money than in the past, due to the reduction of tax receipts as seen in a slow-down-recession. The state of New Jersey is already looking into raising tolls to compensate for this economic slow down. All this doesn’t scare us at all, what does scare us is the possible implosion of the banking and financial systems. What happens when the buyers disappear as they did this past week? The Federal Reserve has goosed up its supply of money at the window, for all those wishing to take advantage of the increased liquidity, yet the buyers at the most recent auction were on strike. This has been going on for some time now, but last weeks auction failure was a huge failure. If the short market continues to implode, it will affect every market. Currently, the US stock market is ignoring this bothersome event much like a nasty mosquito, flying around your head.

When chaos reigns in the financial system, we are all in trouble and the only reasonable investment becomes cash! As you may remember, we warned of the sub-prime implosion a full year, actually a bit more than a year, prior to the explosion, we warned that people were using their homes as ATM machines and that this sort of behavior would get them in trouble. We continue to warn that the high end debt market is in trouble and that the trouble will leak into the commercial markets. We warned about the commercial real estate market several weeks ago. We warned that credit card debt will become liabilities for the issuers of the credit. Again we continue to believe that if you have plenty of cash sitting waiting at the ready to be invested, we are entering a time when you could make a killing, scooping up cheap real-estate and buy into very cheap markets. We warn you that we are not there at this time. We are not oversold rather we are somewhat neutral. Sentiment indicators are oversold, but they might be correct to be so pessimistic. There is a contradiction here also, the put/call ratio isn’t bad and short interest has been declining and is at a rather low level. A short is a buy just waiting for a time to buy. Further, this market is not cheap unless you believe that the economy is expanding at the same rate as it did, say a year ago. Frankly, it is not and earnings will feel the impact of the slowdown in the economy, thus making the stock market almost fairly valued…..NOT CHEAP!

It is unbelievable that Congress spent time grilling a baseball trainer and baseball legend rather than focusing on the imploding economy! Dr. Bernanke did testify before the Senate Banking Committee this past Thursday. The questions asked of Dr. Bernanke, during his testimony, were laughable and illustrated to the public how little many of these Senators know about economics! An eight grader would know more than these elected officials knew!

Europe and the UK are in big trouble also, so don’t run to those markets to hide for cover. On the other hand, we have no trouble looking at the Asian economies which, will continue to grow, with or without the USA. Russia is another economy which should continue to expand, unfortunately, it is like the Wild West ruled by Al Capone. Australia is another economy which should be looked into. As to the S&P 500, this index is on the slightly overbought side of neutral. We have a point of inflection due in the Tuesday session. This is a point where the market will have a violent move. Should the market trade above 1352.78 and close above that level on Tuesday, we will go long, however; should the market trade below 1352.78 and close below that levels on Tuesday, we will go short.

Tuesday: Wal-Mart and Barclays release earning, and Minneapolis Fed President Stern speaks.

Wednesday: January CPI is released at 8:30, January housing starts and building permits are released at 8:30, the minutes of the January FOMC meeting are released at 2:00, and St.Louis Fed President Poole speaks.

Thursday: January leading indicators are released at 10:00 and February Philadelphia Fed Survey is released at 10:00.

Friday: short interest for the NYSE and ASE is released.

The US Dollar index fell below the very short-term uptrend line in the Friday session. We can, at the moment project a return to 75.30 in the not to distant future. Much has been written about the over abundance of bears on the US Dollar index. We disagree with that finding, and believe that many, of the so called bears, have actually taken long positions or flatted out their short positions in the US Dollar index. The stochastic indicator, our own indicator and the Thomas DeMark Expert indicator all continue to point lower. The RSI is going sideways at neutral levels. The 5-period moving average is at 76.433. The top of the Bollinger band is at 77.285 and the lower edge is seen at 75.074. The Market Profile chart is somewhat troubling. It shows marginal support and instability below 75.90 and even less support at the lower levels. This bearish concern was verified when the US Dollar index closed below the Ichimuko clouds. The weekly chart shows the US Dollar index making a pennant. The uptrend line on the weekly chart is at 75.071 for this coming Friday. The stochastic indicator, our own indicator and the RSI are all uniformly issuing a fresh sell-signal on the weekly chart. The Thomas DeMark Expert indicator is issuing a continued buy-signal for this time-frame. The monthly chart is sending out mixed signals. Both the RSI and the stochastic indicator are oversold and issuing a buy-signal, our own indicator and the Thomas DeMark Expert indicator, are at neutral and issuing a buy-signal. We continue to believe that we will see a return to the 75.30 level and, should that fail to hold up the market, we have a liability to the downside and could print new lows.

The British Pound Sterling remains below the Ichimuko clouds on the daily chart. The stochastic indicator, our own indicator and the RSI are all issuing a uniform sell-signal. The Thomas DeMark Expert indicator is issuing a continued buy-signal at overbought levels. The 5-period moving average is at 195.70. The top of the Bollinger band is at 199.10 and the lower edge is seen at 193.32. The Market Profile chart tells us that if we revisit the 193.60 area, we will enter a zone of instability causing the market to react quickly taking us to192.10 and 190.40. When reviewing the weekly chart we notice that the British Pound is below the Ichimuko clouds. On a positive note, the stochastic indicator, our own indicator and the RSI are all issuing a buy-signal for that time-frame. Further, the previous week’s low of 193.55 has held. The point and figure chart agrees with these findings. The monthly chart shows that all the indicators that we follow herein are pointing lower, however; they are oversold and getting more oversold.

The Canadian Dollar retreated in the Friday session but did not remove the recent low of 98.65, seen on February 7th. All the indicators that we follow herein continue to issue a sell-signal. The 5-period moving average is at 99.75. The top of the Bollinger band is at 101.45 and the lower edge is seen at 97.26. The point and figure chart tells us that we need to get worried if, the Canadian Dollar trades below 98.80. Under that level, we will find ourselves sliding to 96.80. When looking at the Market Profile chart we notice that under 96.80 we enter the single prints which could cause a further slide to 95.15 and 94.05, under that, just hide out! The good news on the weekly chart is; we are above the clouds. The Thomas DeMark Expert indicator and the stochastic indicator are issuing a buy-signal on the weekly charts. Both the RSI and our own indicator are issuing a sell-signal. We need to close above the downtrend line at 100.21 to turn the weekly chart positive.

The S&P 500 is forming a coil or pennant on the daily chart. The resolution to this point of inflection will occur in the Tuesday or Wednesday session, the number to watch is 1352ish. We will see an explosive move, do not fight the move, go with it. The indicators that we follow are looking flattish. Only the Thomas DeMark Expert indicator is issuing a sell-signal, the others are on a sort of buy, but not really convincing. The 5-period moving average is at 1350.82. The top of the Bollinger band is at 1388.98 and the lower edge is seen at 1309.31. The Market Profile chart tells us that if we break out of our comfort zone or range of about 1326.60 to 1380 we could run to 1416 without much trouble and then above that move back into another comfort zone. On the downside, there doesn’t look like much support below 1308 or so. On the point and figure chart we see support at 1345, 1341.60, and 1338.60. We remain below the clouds on both the daily and the weekly time-frame. The indicators on the weekly time-frame are uniformly positive all issuing a muted buy-signal. The monthly time-frame indicators are uniformly issuing a sell-signal.

The NASDAQ 100 declined in the Friday session while the S&P 500 rose, albeit marginally. The S&P 500 outperformed the NASDAQ 100 for the entire trading day. All the indicators that we follow herein are uniformly issuing a sell-signal for the NASDAQ 100. The chart looks as though we have made a rounding top and could travel back to the recent lows. The 5-period moving average is at 1797.65. The top of the Bollinger band is at 1862.51 and the lower edge is seen at 1750.01. So long as this market remains above 1713.00 we will not test the lows but should that level fall, expect the lows of January 23 to fall in a bear raid. The candle seen as a result of the Friday session is a doji-like candle. This indicates that both the bears and bulls were evenly matched in the session. Most of the buying in both the NASDAQ 100 and the S&P 500 entered the market both at the opening of the day session and in the last half hour of the day session. The swings in between were violent. Both the daily and the weekly charts show that the NASDAQ 100 remains below the Ichimuko clouds. The indicators for the weekly time-frame are all positive. The indicators on the monthly chart continue to issue a sell-signal. The monthly chart looks like this index is failing and will return to the previous trading range of 1400 to 1860.

The Russell 2000 remained under selling pressure for most of the Friday session, then in the last hour, the Calvary rode in and took the index from the despair of 696.50 to 703.90 in the last hour of trading. Once the stocks closed at 4:00PM EST, the futures drifted a little bit lower closing the session at 701.30. All the indicators that we follow herein uniformly continue to issue a sell-signal. The 5-period moving average is at 706.90. The top of the Bollinger band is at 730.30 and the lower edge is seen at 673.37. We do not have a point of inflection in the Russell 2000 chart. We seem to be in a sideways pattern with boundaries at 685.70 on the bottom and 733.80 on the upside. We need to see a close above Thursday’s high of 725.40 to bring the 733.80 number into play. The indicators on the weekly time-frame are issuing a very mild buy-signal. The weekly chart shows that we did close slightly up on the week. We remain below the clouds on the daily and the weekly chart. All the indicators on the monthly chart are pointing lower.

The Continuous Commodity Index cash and futures both printed a life-of-contract high in the Friday session. We have signs of exhaustion. We are overbought and have been in this condition since January 24, coincidentally a day or two after the bottom fell out of the equity markets. The stochastic indicator and our own indicator have just issued a sell-signal. The Thomas DeMark Expert indicator is issuing nothing; it is flat at dead neutral. The RSI is overbought and issuing a continued buy-signal. The 5-period moving average is at 520.70. The top of the Bollinger band is at 531.04 and the lower edge is seen at 477.23. This rally has been astounding, and seemingly never ending. The weekly chart is exhausted. The stochastic indicator is issuing a sell-signal for this time-frame. Our own indicator is curling over, but has not issued a sell as yet. The RSI is overbought and pointing higher and the Thomas DeMark Expert indicator is flat and neutral. Remember, there is no overhead supply as we move higher. There is little to stop the upside movement until profit takers appear, then, we can decline. Right now, we would not add to positions if long, nor would we sell. We would have tight trailing sell-stops to protect any profits we have.

May cocoa printed a fresh life-of-contract high in the Friday session and promptly retreated leaving a red candle on the chart. We have seen this act before, about a week and a half ago. Friday’s action is somewhat different from the action seen on February 7th. This time we have the stochastic indicator, the Thomas DeMark Expert indicator and our own indicator all issuing a uniform sell-signal. We have a 7-count and cocoa probed above the upper Bollinger band, closing below that band. The 5-period moving average is at 24.77. The top of the Bollinger band is at 25.62 and the lower edge is seen at 21.11. The point and figure chart really brings out the magnitude of the recent rally. The weekly chart is exhausted but positive. The Thomas DeMark Expert indicator has stopped trending, our own indicator looks ready to issue a sell-signal, the stochastic indicator has issued a sell-signal and the RSI is pointing higher, all for the weekly time-frame. Clearly, there is no over head resistance. Keep an eye on the US Dollar vs. the British Pound for some arbitrage opportunities.

May sugar printed 14.14 in the Friday session, but fell victim to profiteers before the session was over. We have an overbought 12-count on the chart. The stochastic indicator and the Thomas DeMark Expert indicator are issuing a solid sell-signal. Our own indicator is curling over to the downside and the RSI is simply pointing higher at overbought levels. If sugar returned to the uptrend line it would decline to 12.70 in the Monday session and 12.90 by the Friday session. The 5-period moving average is at 13.32. The top of the Bollinger band is at 13.71 and the lower edge is seen at 11.69. The weekly chart is overbought and exhausted. The indicators for this time-frame are mixed. The Thomas DeMark Expert indicator is flat at neutral, our own indicator is issuing a buy-signal, the RSI is overbought and continues to point higher, and the stochastic indicator is curling over to the downside but no signal is being issued. The monthly chart is overbought. We remain above the clouds on both the daily and the weekly charts.

May coffee printed a new life-of-contract high, then promptly fell, closing near the lows of the day. The stochastic indicator, our own indicator and the RSI are all pointing lower issuing a sell-signal. The Thomas DeMark Expert indicator is flat at neutral levels. The 5-period moving average is at 152.12. The top of the Bollinger band is at 147.63 and the lower edge is seen at 124.24. The point and figure chart tells us that if we can rally above 152, we will go back to the highs. On the other hand, we are in an area of some comfort. We are above the clouds on all the time-frames. The indicators on the weekly chart are mixed. The Thomas DeMark Expert indicator and the RSI are overbought and pointing higher. The stochastic indicator has just issued a sell-signal and our own indicator will issue a sell-signal within a day or two. We could see coffee drop to 135.47 and remain in the uptrend, on the weekly chart. The uptrend line on the daily chart for the Monday session is at 152 and for the Tuesday session it is at 153.79. Naturally that uptrend line is very steep. It is reasonable for us to believe that coffee will return to 146-144 fairly soon.

May cotton really felt as though it broke out to the upside but, it really didn’t. We did have a limit up day on Thursday and an upside probe into the overhead gap, which, it filled, in the Friday session, but really, nothing special was achieved on the chart. The indicators are mixed. The stochastic indicator is about to issue a sell-signal, our own indicator is not far behind. The RSI has issued a sell-signal but the Thomas DeMark Expert indicator is issuing a continued buy-signal. The 5-period moving average is at 69.46. The top of the Bollinger band is at 71.99 and the lower edge is seen at 68.26. We remain above the clouds on the daily, the weekly and the monthly charts. The weekly chart has signs of exhaustion. The range of the market expanded leaving a high-wave candle on the chart. The stochastic indicator, the RSI and our own indicator all are issuing a sell-signal for the weekly chart. The Thomas DeMark Expert indicator is going sideways. Cotton’s high for the week was 72.15 and the low for the week was 68.05.

May Frozen Concentrated Orange Juice looks lousy highlighted by a bearish engulfing candle as a result of the Friday trading session. The oversold indicators continue to issue a sell-signal. Only the Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period moving average is at 127.45. The top of the Bollinger band is at 145.41 and the lower edge is seen at 125.04. The point and figure chart indicates that we could retest the 123.00 level and then a drop to 116.00. The weekly chart looks as though we will go for the gap from 121 to 117.75 to 116.30. The low of that move is at 115.50. We are negative on FCOJ, however; we would expect a dead-cat-bounce within a day or so. That might be a good time to reassess the market.

April gold traded lower in the Friday session. The indicators are going sideways without giving a signal. We remain above the Ichimuko clouds, a positive, and seem to consolidating. We will have a point of inflection between Thursday and Friday of this coming week. That is a point where the consolidation will result in a violent move. 910.40 is a critical level for the point of inflection. If we are above 910.40 and close above that number, we will go for the highs, however; if we are below that number we will decline to 888.40 and 855.00. The 5-period moving average is at 912.90. The top of the Bollinger band is at 938.22 and the lower edge is seen at 885.26. Both the stochastic indicator and the RSI are issuing a sell-signal on the weekly chart. The weekly chart looks as though we are forming a bull flag, but it is too early in the formation to declare it. The monthly chart verifies the weekly chart. Keep an eye on 910.40 for a clue as to the direction of this market. The point and figure chart tells us that we will be open to a downdraft should we close below 902 with the first stop at 890. Under that level, there is 878, 862 and 856.