The Option Queen Newsletter

Did we see a double bottom or, are we seeing an oversold bounce called a “bear market bounce.” Pundits, media, and gurus are all on the same page, bellowing from the roof tops this is a market bottom! Our very own FOMC has decided to bail out failing financial institutions. Goldman, Lehman and others are lining up at the Fed window to borrow cheap money. Why not, it is cheap and available without question. If we could we would borrow at the Fed window! Finally, at long last, the financial institutions formerly barred from this exclusive club find that they are welcomed in the hallowed halls of the Fed window. Banks have been doing it for years; why not let the others in? Naturally, the banks can’t be too happy about that, you know sharing the piggy pie with the likes of a Goldman! Just to be fair, borrowing at the Fed window carried with it a stigma of trouble and doom for the borrowing banks. Recently, this stigma and bad karma has been removed by the Fed and a “welcome” mat has replaced the “Grim Reaper” at the window.

The market could be setting up for a bottom, but we really don’t believe that one just yet. The news has been bad enough, but the time frame is a bit short. The gyrations in the commodity markets have been eye-catching. There is very little doubt that once the markets began to fall, the lemming effect came into view. Rather than getting caught long, many funds, CTA’s and investors just dumped their holdings in commodities. It was a stunning sell-off. Perhaps, some of the money was used to answer margin calls from the equity side of the investment portfolio. We noticed, in the past year that as one commodity caught the upswing, many CTA’s and funds jumped on board following the trend higher. This caused more funds to jump on board and goose the prices even higher. When the selling began, we witness the exact opposite behavior…”well, if George is selling we ought to be selling also. Maybe we should think about going short?”

Our problem is that everybody is in agreement that this is a double bottom and that a rally from these levels is a sure thing. The consensus believes this is the bottom, the media believe that this is a bottom, fund managers are praying for a bottom…..we don’t think so. Too many voices singing in harmony vocalizing the end of the bear market is just too much for us. When there are very few bulls left, when the pundits and media are sending out the SOS signal, maybe then we will be at a bottom. Let us think back to the early eighties when the PE on Ford was two, when earnings from GE were strong, when interest rates were at 19+%, and the stock declined in the face of good earnings. We remember that era clearly, we were just a pup in the board room wondering why, the stock kept going down in the face of such good earnings. That was a bottom. People were so scared that they kept their stash of money beneath the mattress. That was a bottom, and by the way, that bottom was not achieved in a single week when all the bears became bulls, no, it took time. As we have warned in the past rallies in a bear market can be vicious and convincing, but be scared….very scared.

Monday: February existing home sales are released at 10:00.

Tuesday: S&P/Case-Shiller Home Price Indices are released at 9:00, March consumer confidence is released at 10:00, February equipment leasing and finance index is released at 10:00 and finally short interest in the NASDAQ is released.

Wednesday: February durable goods are released at 8:30, February new home sales are released at 10:00, and Dallas Fed President Fisher speaks. Thursday: 4^th quarter GDP is released at 8:30 and the first auction by the Fed under Term Securities Lending Facility is had (this is 28 day paper to dealers).

Friday: personal income and consumption for February is released at 8:30 and Philadelphia Fed President Plosser speaks and Sandra Braunstein, Fed Consumer Affairs Director speaks about the Feds responsibility in the sub-prime mess.

The US Dollar Index enjoyed the biggest rally seen since the rally on February 7, 2008. Thursday’s rally left a bullish engulfing candle on the chart. Make no mistake; we have not broken out of the bear trend as yet. This rally was the forth day for the US Dollar Index to close the day at higher levels than it had begun the day. The indicators that we follow all continue to issue a uniform buy-signal. The moving average is at 72.390. The top of the Bollinger band is at 75.486 and the lower edge is seen at 71.467. The stochastic indicator, our own indicator and the RSI are all pointing higher on the weekly chart. When looking at the weekly chart, it is clear that we are in a downtrend. The Thomas DeMark Expert indicator is issuing a sell-signal on the weekly chart. The indicators are mixed on the monthly chart but what is not mixed is the direction of the US Dollar Index which is, down.

Wow, do you see the Euro’s slide in the Thursday session! All the indicators that we follow are uniformly issuing a sell-signal! The 5-period moving average is at 155.384. The top of the Bollinger band is at 157.628 and the lower edge is seen at 147.594. We do have room to the downside but really haven’t done a lot of damage to the chart. We are simply returning to a previous congestion area. The uptrend line for the Monday session is at 150.24. The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal on the weekly chart. The Thomas DeMark Expert indicator is overbought but pointing higher. Naturally we have signs of exhaustion. The monthly chart is less clear but definitely overbought. The Market Profile chart tells us that should we move above 157.45, we will have entered a very unstable area of the chart. Further, should the market trade below 150.75, we could move to the 148.07 area quickly.

The British Pound Sterling had a very confusing week. The market tried to stabilize in the Thursday session, leaving a green candle that is almost a doji candle. The RSI has stopped declining and is now going sideways. The stochastic indicator is curling to the upside and looks as though it will issue a buy-signal within a day or so. Our own indicator has much the same formation as the stochastic indicator only that it isn’t oversold and the stochastic indicator is oversold. The Thomas DeMark Expert indicator continues to point low at oversold levels. The 5-period moving average is at 198.70. The top of the Bollinger band is at 201.78 and the lower edge is seen at 194.74. The weekly chart had a large red candle as a result of this past week’s declines. The stochastic indicator, our own indicator and the RSI are all issuing a continued sell-signal. The Thomas DeMark Expert indicator is pointing higher at overbought levels. The monthly chart looks as though the British Pound Sterling is trying to form a bottom, however, the indicators, all but the Thomas DeMark Expert indicator, are all pointing lower. The point and figure chart warns that below 195.80, we will have a liability to 192.20.

The Canadian Dollar looks awful. All the indicators that we follow are pointing lower all are oversold but without a bend. The plunge in the Canadian Dollar, in part, could be viewed as a commodity bear raid. We now have a liability to 96.116, which was the low on January 22, 2008. Does that date sound familiar….well, it should. That date, January 22 and 23 marked a recent low in the S&P 500, naturally this past week we did see a lower spike to the downside. Market Profile tells us that the Canadian Dollar closed at a comfortable level and that unless it can rally above 101.92, it will have little inspiration to the upside. The point and figure chart warns that we could retest the 96.40 level. The 5-period moving average is at 99.462. The top of the Bollinger band is at 103.002 and the lower edge is seen at 97.965. The weekly chart shows clearly the downside break out of a pennant. The indicators on the weekly chart continue to issue a uniform sell-signal. The monthly chart verifies findings of the weekly chart.

The S&P 500 printed a lower low this past week. Pundits are calling for a “double bottom” formation. While we did have some divergences with the new lower low we continue to view the upside action as a rally within the confines of a bear market. The indicators that we follow are pointing higher with a continued buy-signal. The Thomas DeMark Expert indicator is going sideways at neutral levels. The point and figure chart tells us that we could find some stiff resistance at 1332+/- a point or two, on the other hand should we fall below 1323.50 we could swiftly retreat to1316.50 and the 1306.50. When reviewing the Market Profile chart we see some agreement with the upside, MP being at1339.50, then further resistance at 1371 and more at 1408.20. We think that among the easiest ways to look at a chart is by using a line drawing. For the S&P 500, it clears tells us that we are in a downtrend, yes, you can see a “double bottom” if, in fact it is a bottom. We notice that the S&P 500 remains below the Ichimuko clouds on the daily and the weekly chart but above the clouds on the monthly chart. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal on the weekly chart. The Thomas DeMark Expert indicator is issuing a sell-signal at oversold levels. The monthly chart shows that the indicators are getting oversold but only our own indicator has a bend to the upside but no buy signal. We remain cautious on this index and until the lows of this past week are tested successfully, we will be skeptical regarding the lasting return of a bull market.

The NASDAQ 100 rallied on Thursday in what looked like a short-covering program closing out positions in front of the three-day Easter Holiday. While many call this a turn-a-round confirmation of an ensuing rally, we have a jaundice eye on that theory and will wait to see if there is follow through to the upside and even perhaps a close above the very short-term downtrend line for Monday at 1763.56. We have seen this index poke above the line but we haven’t seen a close above the line. The stochastic indicator, our own indicator and the RSI all continue to issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal. The 5-period moving average is at 1722.79. The top of the Bollinger band is at 1811.80 and the lower edge is seen at 1676.41. Notice when you look at the chart that the market is going sideways, neither up nor down dramatically just sideways. All the indicators that we follow herein are pointing to the upside on the weekly chart. Further, it looks as though the market is trying to form a bottom. We have rallied for the past two weeks, can this be the start of something or just a pause that refreshes. Back to reality, we remain below the Ichimuko clouds on the daily and the weekly charts.

The Russell 2000 rallied in the Thursday session closing out the shortened week on a positive note. All the indicators that we follow herein are issuing a continued buy-signal, none is oversold and all are on the positive side of neutral heading towards the overbought line. Much is being made of the possible double bottom on the S&P 500. The Russell 2000 could not only have a possible double bottom but a double recent top at 690. The 5-period moving average is at 668.30. The top of the Bollinger band is at 719.79 and the lower edge is seen at 641.26. The weekly chart shows that the Russell 2000 is oversold. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal for the weekly chart. The Thomas DeMark Expert indicator is issuing a sell-signal at oversold levels. The weekly chart shows that for the past two weeks we have seen some positive formations yet we have a downtrend line at 700 or so looming overhead. The market needs to close above that downtrend line to turn this chart positive. We remain below the Ichimuko clouds for the daily and the weekly chart. We have a nine-count on the monthly chart with the indicators at oversold levels and pointing lower.

Here is what we said last week: “Looking at the daily chart, we could be building an “M” pattern. Here are the rules: we can not make a new high or, the “M” is out, and we must close below 547.89.” The chart shows the very clear “M” formation with the valid sell-signal issued on March 17^th. Our target on the near-by contract is 493 +/-. We just might see that number in the Monday session. Our feelings are that we don’t have to hit the number head on to finish the formation. The stochastic indicator and our own indicator have both issued a buy-signal. The RSI continues to point lower and the Thomas DeMark Expert indicator is going sideways. The 5-period moving average is at 539.26. The top of the Bollinger band is at 586.16 and the lower edge is seen at 528.28. The weekly chart shows that this past week removed about four weeks worth of a rally in one quick plunge. The sell-off has been eye-popping with many of the commodities in this equally weighted index moving 20+% in a week. The monthly chart looks as though this index has topped out with a stellar 19-count seen in the previous month. The indicators are uniformly issuing a sell-signal for this time frame. We believe that we might hold the 493 level and bounce from here. The slide has been swift and steep. Caution is the byword here.

May sugar’s decline this past week was merely a continuation of the decline that began on March 4^th. We continue to see this market make lower lows and lower highs, which is the definition of a downtrend. All the indicators that we follow are oversold but all are going sideways. The 5-period moving average is at 12.31. The top of the Bollinger band is at 1523 and the lower edge is seen at 11.73. We probed below the lower edge of the Bollinger band and bounced from that level in the Thursday session. We are in the Ichimuko clouds which warn us not to trade. This past week’s downtrend left a huge red candle on the chart. All the indicators that we follow herein are issuing a solid sell-signal. We remain above the Ichimuko clouds for the weekly and the monthly charts. We seem to be heading back to our old range of 10.90 to 9.42.

We told last week: “We have a mechanical sell-signal for May coffee.” This market has been beaten up by the bears, which seem to want to return the market to 121! The stochastic indicator and the RSI are both oversold but are not issuing a buy-signal. Our own indicator is issuing a very mellow buy-signal and the Thomas DeMark Expert indicator is just going sideways. The 5-period moving average is at 136.80. The top of the Bollinger band is at 174.78 and the lower edge is seen at 130.49. We are below the Ichimuko clouds on the daily chart but above the clouds for the weekly and monthly charts. The weekly chart has a very large red candle on it yet, the indicators continue to point to lower levels. The sell-off in coffee has been very violent and warns that more violent price action may be in our future.

May cocoa, no fizz just a plop, needs some Alka-Seltzer! The entire week has hosted a decline for cocoa. The stochastic indicator, the RSI and our own indicator are all oversold but only our own indicator is issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a continued sell-signal. The 5-period moving average is at 26.14. The top of the Bollinger band is at 29.68 and the lower edge is seen at 24.30. Take a look at the weekly chart…..wow….what a drop. The drop wiped out seven weeks of a rally in one week. There is reason to believe that we will return to the 22 area where some support will be found. The indicators on the weekly chart are all issuing a sell-signal. We remain above the Ichimuko clouds for the daily, weekly and the monthly time-frames.

It really looks as though cotton was the leader in the rally and in the sell-off. We have hit support levels in cotton. All the indicators that we follow herein are issuing a buy-signal, not a strong one but a buy-signal nonetheless. The 5-period moving average is at 74.53. The top of the Bollinger band is at 89.33 and the lower edge is seen at 70.35. We are, just barely, above the Ichimuko clouds. The weekly chart shows the damage done by the recent downturn in this market. All the indicators that we follow herein are issuing a sell-signal based on the weekly and the monthly chart. We have returned to a previous congestion area on this chart. We remain above the Ichimuko clouds for both the weekly chart and the monthly chart. We probably will find support at 68.05 and 64.58.

We have been on target with our analysis of Frozen Concentrated Orange Juice. Obviously, the September lows didn’t hold this market. Now what? We are seeing some stability returning to this market. The indicators are all oversold but only the stochastic indicator, the RSI and our own indicator are issuing a very muted buy-signal. The good news is that so far, the lows are getting just a bit higher. If this can hold, we could see the market rally to perhaps as high as 126. The 5-period moving average is at 115.47. The top of the Bollinger band is at 135.80 and the lower edge is seen at 111.56. We are below the Ichimuko clouds for the daily and the weekly charts. Both the weekly indicators and the monthly indicators are oversold but continue to issue a sell-signal. We have a 9-count on the weekly chart. We looked at the monthly chart to find a support zone which is at 102, going back to 2005 but there isn’t much support there. Better support is seen between 78 and 84 yikes!!!!

Crude oil did retreat last week and left a doji like long tailed candle on the chart, looks like a hangman, as a result of the Thursday session. Crude dropped in concert with the majority of commodities this past week the difference being that crude did not drop as much as other commodities did. All the indicators that we follow continue to issue a sell-signal. The 5-period moving average is at 105.17. The top of the Bollinger band is at 110.70 and the lower edge is seen at 96.63. We continue to see crude oil above the Ichimuko clouds on the daily, weekly and monthly chart. We finally broke the uptrend line on the daily chart. It is reasonable to believe that we will return to levels seen in February where support should be found. Those levels are around 96.00. The Fibonacci 50% retracement number is 97.71, and the 61% level is 94.74. If you look at the entire move from October to the current highs, the Fibonacci retracement number at the 50% level is 80.85, the 61.8% number is 73.50. The uptrend line is at 86.76, on the weekly chart. Naturally we are above the Ichimuko clouds. The indicators continue to issue a sell-signal on the weekly chart.

April gold fell hard this past week as commodities universally took a dive. The stochastic indicator is curling to the upside and will, within a day, issue a buy-signal. The RSI continues to point lower at extremely oversold levels. The 5-period moving average is at 974.34. The top of the Bollinger band is at 1014.71 and the lower edge is seen at 927.76. Notice that we have closed below the lower edge of the Bollinger band, a level from which we should see the market bounce. The indicators that we follow continue to issue a sell-signal on the weekly chart. Gold remains above the uptrend line on the weekly chart. The monthly chart is verifying the findings seen in the daily and weekly charts. All the time-frames find gold trading above the Ichimuko clouds. Gold finds itself in a healthy, albeit scary retreat. The rally has been too swift and too steep, this retreat is healthy, and should have been expected.