Archive for May, 2008

Optnqueen Newsletter for May 26, 2008

Monday, May 26th, 2008

Do you feel better today than you did last year at this time? Are your bills mounting in piles on your desk? Have you filled your gas tank recently? Are lines forming at your local gas station with cheap prices? Have you seen your utility bill lately? Is there any wonder that the consumer is pulling back on spending? Vacations are being planned that are in walking distance of home, or perhaps we can bicycle to the local park for a camp out. How about a hike along the banks of the Hudson River for an outing? Summer vacation spots that are a train-ride away are appealing while driving for hours in bumper-to bumper traffic is like watching your dollars evaporate into thin air without any pleasure from that evaporation.

Even the very wealthy will feel the pinch of inflation eroding the extra few dollars set aside for fun and vacation. The airlines are raising ticket prices just at a time when vacationers are opting to stay at home. It would be more reasonable to charge extra for fuel than to charge extra for baggage. Remember those overhead spaces for carry-ons? They, no doubt, will be jammed tight with passages opting to carry-on their bags rather than to pay the extra 15 bucks. The planes are already a nightmare to load and now with this brilliance, they will be worse.

Remember too, we are among the minority of letter-writers telling you for well over a year, that there is inflation and that this inflation is going to erode the value of your paycheck. We have further warned that this is not just a middle-class problem but rather one that is seeping into the entire economy. Remember we warned that the Macklowe family, owners of the GM tower were in financial trouble. We note that the GM building along with three other midtown buildings, owned by the Macklowe family, were sold to a group lead by Mort Zuckerman.

As to crude oil, it is like the housing bubble in that it will peak when it peaks and not a second before that time. You never know when a bubble will burst; we only know that it will burst. Crude oil has a wider appeal globally and may take longer to peak. Yes, we projected 135 a barrel with an eye to 150 a barrel. Is that the end? Who knows, we certainly don’t, but we have the ability to measure moves. As an aside, we see many articles telling us that in terms of this or that crude oil is not expensive. This may well be true however, when you empty your wallet at the local gas station, those words telling us that oil is not expensive seem laughable or something that could have fallen out of “Mad” magazine.

Remember, the cost of computers and non-designer apparel continues to be cheap. While you can’t eat a computer, flat-screen TV or outfit, it won’t cost you more today than it did a year ago. That said, this may be a really good time to start that diet you were talking about last year. Think about it, diet now and save enough money to drive to the movies for that summer movie you wanted to see. The effect will be that you will fit into your clothes, feel better and weigh less and you will get to see a new hot movie. Alternately, you could save all the money from not eating, and create a vacation club for yourself, so that you can afford to go to the beach at least once this summer!

The S&P 500 is trading between the 200 day moving average and the 50 day moving average. This isn’t rocket science and easily discerned. We will look above the 200 day moving average and we will pierce below the 50 day moving average. So long as we don’t close for more than two days, on either side of these averages, we will be stalled in this range. Should we break above or below those moving numbers for more than a day or so, we will cause the piling in effect. As the market moves above the 200 day moving average, there will be buy stops above that level which will cause other buy-stops to be elected. On the other side of the fence will find sell-stops below the 50 day moving average, which, will be elected as we close below that average. Naturally, as those sell-stops become elected they will cause the domino effect causing further sell-stops to become elected. In other words, don’t fight the stops, just pile in behind them and get out quickly before they reverse. Just in case you haven’t noticed, the market has gotten oversold and will reverse in a couple of days.

Tuesday: Case-Shiller home sale prices are released, May consumer confidence is released at 10:00 and April new home sales are released (This number could be suspect as builders add incentives to increase sales to reduce inventory of unsold homes thus freeing up some cash.).

Wednesday: April durable goods are released at 8:30 and Minneapolis Fed President Stern speaks.

Thursday: 1st quarter GDP is released at 8:30.

Friday: last day of the month for trading in May, April personal income and consumption are released at 8:30, May Chicago PMI is released at 9:45 and May Michigan Sentiment is released at 10:00.

The US Dollar index retreated in the Friday session however remained above the low of the Thursday session. By way of inches this was a positive for the US Dollar index which, is loaded with negatives. The US Dollar index appears to be setting up to test the lows of April. All the indicators that we follow are oversold yet all continue to issue a sell-signal. We continue to see this market trading below the Ichimuko clouds on the daily chart. Currently, the US Dollar index is way below the 200 day moving average and also below the 50 day moving average. The 5-period moving average is at 72.429. The top of the Bollinger band is at 74.095 and the lower edge is seen at 72.068. We closed below the lower edge of the Bollinger band and, as such, we will bounce above it within a day or so. That is not a positive declaration but rather a declaration of “oversold.” The weekly chart offers no help if you are looking for something bullish to hang you hat on. This chart looks as though the market is setting up to retest the April lows. All the indicators for this time-frame are negative. We are below the Ichimuko clouds for the weekly and the monthly time-frame. The monthly chart’s indicators are oversold but nary can a bend be found, indicating that we will go lower.

The Euro keeps on chugging higher into the gap, left on the chart on April 23 to the 24th leaving a hole in the chart from 158.30 to 157.30. Obviously, it was a downside retreat that caused that gap. The Friday session saw the Euro step into that gap and close at the lip of the gap. We have signs of exhaustion for the Euro yet all the indicators are pointing higher at overbought levels. The 5-period moving average is at 156.696. The top of the Bollinger band is at 157.595 and the lower edge is seen at 152.872. We do have signs of exhaustion in this market. We are above the Ichimuko clouds on the daily, weekly and monthly chart. All the indicators on the weekly chart are positive and indicate that we will go higher. The monthly chart is telling the same story. Our problem is this: although the chart looks as though the Euro will trade to the recent high, we have some doubts as to the overall health of the Euro Zone Economy. Thus, we are very cautious when looking at the Euro. The charts tell us that we are going higher however; the chart also tells us that we are grossly overbought. We probably will close the overhead gap, but we are not convinced that we will make a new life-of-contract high.

This is from last week’s letter: “Based on the daily and the weekly chart we remain friendly towards the Euro. This friendliness can change without notice and will become bearish should this market trade below 152.76.”

The Canadian Dollar has been in retreat for the past two days. All the indicators that we follow herein have turned negative and are issuing a uniform continued sell-signal. We have a 9-count on the chart to further throw cold water on the rally. On the positive side, we are above the clouds on the daily chart. The 5-period moving average is at 101.12. The top of the Bollinger band is at 101.69 and the lower edge is seen at 97.56. We find ourselves in the clouds for the weekly time-frame but above the clouds for the monthly time-frame. The indicators that we follow, on the weekly chart, are all issuing a uniform buy-signal. For the bulls, we need to see a close above 102.90 for a run to the old high of 110.09. Should we close above 102.90, we do believe that we will not only rally to the highs but remove those highs on that upside push. The monthly chart supports the findings of the weekly chart, all of which seem to be positive.

The British Pound Sterling is giving us mixed signals. The upside push in the Friday session inched above the clouds, momentarily, but eventually closed in the clouds below. The stochastic indicator is overbought and continues to issue a buy-signal. Our own indicator is curling over to the downside and will issue a sell-signal in the next session. The Thomas DeMark Expert indicator has issued a sell-signal at overbought levels. The 5-period moving average is at 196.49. The top of the Bollinger band is at 198.73 and the lower edge is seen at 193.12. All the indicators that we follow herein are issuing a buy-signal on the weekly chart. We need to see a close above 202.30, on the weekly chart, to encourage a rally back to the highs. We are below the clouds for the weekly time-frame however; above the clouds for the monthly time-frame.

The S&P 500 retreated in the Friday session ending the week, which began on a positive note, negative. During the retreat seen this past week, the index has become oversold. We find the index testing the 50 day moving average of 1372.82. We also note that the S&P 500 closed below the lower edge of the Bollinger band, a level which should offer some support. All the indicators that we follow herein are issuing a continued sell-signal. We are above the Ichimuko clouds on the daily chart. We clearly have done some significant damage to chart upon closing below 1383.70, a level which should have offered better support. The 5-period moving average is at 1401.34. The top of the Bollinger band is at 1433.76 and the lower edge is seen at 1374.42. We need to see a close above 1394.09 to remove the steep downtrend line on the daily chart. More troubling is the weekly chart which shows the index below the clouds and in position to test 1361 and 1350. Of further concern are the indicators for the weekly chart which are all uniformly issuing a sell-signal. When reviewing the monthly chart we notice that the index is above the Ichimuko clouds. The monthly chart’s indicators are more mixed with the Thomas DeMark Expert indicator positive, although the other indicators are sort of negative. Our take on these charts is that we are in a trading range between the 200 day moving average and the 50 day moving average. Until or unless we violate either of these boundaries for more than a day or so, we believe that we will be stuck here in that range. We alert you to the fact that both the 200 day and 50 day moving averages are dynamic and change daily so, keep an eye on these numbers. For right now, the 200 day moving average is 1430.58 and the 50 day moving average is 1372.82.

The NASDAQ 100 retreated in four of the five sessions last week. We see a ledge of support at 1910.08. The Thomas DeMark Expert indicator, the stochastic indicator, our own indicator and the RSI are all pointing to lower levels. Only the Thomas DeMark Expert indicator and the stochastic indicator are in oversold territory. For the bulls to regain control, we need to see the NASDAQ 100 close above 1961.22 and 1998.25. The 5-period moving average is at 1984.90. The top of the Bollinger band is at 2045.27 and the lower edge is seen at 1917.44. The 200 day moving average is at 1967.77 and the 50 day moving average is at 1891.43. We are in a slightly different place than the S&P 500. The NASDAQ 100 has been above its 500 day moving average for several weeks with only occasional forays below that level. Friday’s venture to the downside did not cause angst regarding the 200 day moving average, however; should we continue lower, then we will see a significant change to the recent behavior of this index. We remain above the Ichimuko clouds for the daily chart. The weekly range was in the clouds and closed below the clouds on the weekly chart. We are above the clouds on the monthly chart. The weekly chart shows a bearish engulfing candle with signs of exhaustion. Further, the indicators are uniformly issuing a sell-signal for the weekly time frame and we have a 9-count. The indicators on the monthly chart are positive. We must stay above 1914.50, which is a horizontal support line on the monthly chart. Remember, we do have the end of the month this week and that activity could move the trade to either the bullish or bearish side.

The retreat in the Russell 2000 was less than seen in the other indices. We closed the Friday session below the uptrend line. All the indicators that we follow herein are issuing a continued uniform sell-signal. We are not at oversold levels for the Russell 2000 and show that there is more room to the downside. This index did not cross above the 200 day moving average of 749.05 during the previous upside move, nor did it close below the 50 day moving average of 710.79 during its retreats. Naturally, the moving averages change daily and the numbers cited are calculated using the most recent data. The 5-period moving average is at 732.74. The top of the Bollinger band is at 732.74. The top of the Bollinger band is at 745.50 and the lower edge is seen at 712.32. The good news is that we are above the Ichimuko clouds for the daily chart and further that we have not removed 711.10, a level we need to stay above. The downtrend line is at 730.30. The indicators that we follow are issuing a uniform sell-signal for the weekly time-frame. Worse, we are below the Ichimuko clouds. We need to see a return to 748.50 pronto to reignite the bulls. We find ourselves above the clouds for the monthly chart and we also find the indicators positive for the time-frame. The bottom line is that this index is in better shape than the NASDAQ 100 and certainly better than the S&P 500.

The Continuous Commodity Index plowed higher in the Friday session without the support of the softs. We seem to have a brick wall of resistance at 561.85. We are above the Ichimuko clouds, on the daily chart. The stochastic indicator is curling to the upside and will, within a day or so, issue a buy-signal. Our own indicator has issued a buy-signal and the RSI is pointing higher. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period moving average is at 552.20. The top of the Bollinger band is at 562.56 and the lower edge is seen at 532.28. The uptrend line for the Tuesday session is at 549.42. The indicators on the weekly chart remain positive. We are above the Ichimuko clouds on the weekly and the monthly chart.

There is nothing sweet about the chart of July sugar, that is, unless you are a bear! We have a 9-count on the bottom. The downtrend line is at 10.66 a level we must close above to restart a rally. The stochastic indicator, our own indicator and the RSI are all grossly oversold yet continue to issue a sell-signal. The Thomas DeMark Expert indicator is near neutral levels and not indicating anything of value. The 5-period moving average is at 10.50. The top of the Bollinger band is at 12.32 and the lower edge is seen at 10.19. We are currently below the lower edge of the Bollinger band and will rally back inside that band. We, naturally, are below the Ichimuko clouds on the daily chart, in the clouds on the weekly chart and below the clouds on the monthly chart. All the indicators that we follow herein are pointing lower on the weekly chart. We have re-entered the congested area of 10.16 to 9.50 on the chart. The retreat has been steep and we have damaged the chart and now need to back and fill to remove some of the oversold condition.

July cocoa is giving us a 9-count on the daily chart with a buy-set-up. The stochastic indicator and our won indicator are both issuing a fresh buy-signal. The Thomas DeMark Expert indicator and the RSI are going sideways. The 5-period moving average is at 25.90. The top of the Bollinger band is at 28.08 and the lower edge is seen at 25.27. The downtrend line is seen at 26.82, a level we must exceed to reignite the bulls. We are in the Ichimuko clouds on the daily chart, above the clouds on the weekly chart and above the clouds on the monthly chart. Unfortunately, we have a mechanical sell-signal on the weekly chart and all of the indicators that we follow are in agreement with that finding. The monthly chart is in agreement with the weekly chart.

July coffee rallied in the Friday session but remains within a rather tight trading range of 128.90 to 142.85. All the indicators that we follow herein are issuing a continued sell-signal. The 5-period moving average is at 136.13. The top of the Bollinger band is at 140.75 and the lower edge is seen at 129.36. We are below the Ichimuko clouds for the daily time-frame and the weekly time-frame, but above the clouds for the monthly time-frame. The indicators on the weekly chart are somewhat mixed. We have a sell-signal issued by the stochastic indicator and the RSI but neither the Thomas DeMark Expert indicator nor our own indicator confirms those findings. We have been going sideways since March 20th and seem to be stuck in this range.

Frozen Concentrated Orange Juice rallied in the Friday session. We have a 13-count and a buy-set-up has been completed. All the indicators that we follow herein are issuing a buy-signal, all. We remain below the Ichimuko clouds on the daily and the weekly charts and in the clouds for the monthly chart. The weekly chart shows a small bodied candle as a result of the week’s trading. The indicators continue to point lower however; the momentum of to the downside is mild and we find that the stochastic indicator and our own indicator are curling to the upside. We remain in a downtrend and we seem to have a great distance to travel to remove that bearish view. We will however enjoy a bounce in the context of a bearish downtrend.

July cotton probed the under-belly of the chart in the Friday session and rejected that low closing back in the range of the previous low of May 1st. All the indicators that we follow are issuing a continued sell-signal. Naturally, we are below the Ichimuko clouds for the daily chart but above the clouds on the weekly and monthly charts. The 5-period moving average is at 70.55. The top of the Bollinger band is at 72.33 and the lower edge is seen at 68.87. The weekly chart shows a bearish engulfing candle. The indicators all are issuing a continued sell-signal. It looks from many of these charts of the soft commodities that they are being used as a source of funds to perhaps, fund margin calls on the equity side.

June gold is overbought but continues to look as though it can and will go higher. We remain below the Ichimuko clouds on the daily chart but well above the clouds for the weekly and monthly time-frame. The 5-period moving average is at 919.74. The top of the Bollinger band is at 931.43 and the lower edge is seen at 842.25. All the indicators that we follow for the weekly time-frame are positive for gold. The daily indicators are positive albeit overbought. We can project from the action seen that gold, after some backing and filling will trade up to 950.