The Option Queen Newsletter

The US markets have enjoyed a rally from the low seen in March. The rally has lifted the averages to their various 200 day moving averages. As the rally progressed, the volume remained housed in money market funds sitting tight with low interest yields. Many investment funds, portfolio manages, and investors, dissatisfied with the skimpy yields, seen in the money markets, have been driven to seek better returns in the equity market. It seems that skepticism and distrust of rating agencies and research departments has kept money funds levels high. It appears that the risk appetite and time horizon of the investors housed in the money market funds is being constrained by fear of loss, keeping these funds bloated. We would expect to see this money begin to seep into the equity markets and become a flow back into the markets. Once this is accomplished, we would expect to see the door close behind these investors like cattle being urged up the ramp to the slaughter house.

Our economy is actually slowing down however we do have unusually low interest rates which will continue to support risk taking and investments here in the USA. Some of the risk taking will flow into the next bubble. Where is the next bubble? Many are calling the tightness in the commodity markets the next bubble, and it could well be the next bubble. The difference here is that there is actual real global demand for commodities rather than just speculation. This demand will keep the prices higher longer and inflation a real threat for the consumer. If the US Dollar continues to languish at these or lower levels, the result will be a boon for the exporting industries is the US and a return to manufacturing in the US. The cheap US Dollar helps reduce the cost of manufacturing in the US. Further, many of the manufactured products need not be shipped in to the US and are rather produced here in the US. Frankly, the Fed is again boxed into a corner with inflation pushing on one side and the weakening economy on the other side. Thus, it is a push pull situation. Obviously, the Fed will look to more creative ways to stimulate the economy without putting further pressure on the US Dollar. The how, in this one should be very interesting.

Monday: April leading indicators are released at 10:00.

Tuesday: April PPI is released at 8:30, The Bank of Japan will release their interest rate decision (no change is expected), and Fed Vice Chairman Kohn speaks.

Wednesday: the minutes from the April FOMC meeting are released at 2:00, and Fed Governor Warsh speaks.

Thursday: Fed Governor Kroszner speaks and the hurricane forecast for this season is released.

Friday: Existing home sales are released at 10:00 and the US Bond market closes early in advance of the Memorial Day Holiday.

The US Dollar index tumbled in the Friday session. We have a 13 count on the chart. Although this index is becoming oversold, not oversold yet, there is not a bend in a single indicator to warrant the speculation of an impending buy-signal. The Market Profile chart warns us that below 71.50 we have single prints, or a highly unstable area. The 5-period moving average is at 73.314. The top of the Bollinger band is at 74.226 and the lower edge is seen at 71.850. We are inside the clouds, thus our vision for the future is impaired. Until or unless this market closes above 74.065 it will remain under pressure. The US Dollar index could be the beneficiary of firming Fed Funds rate futures which, indicate that interest rates could well begin to ratchet higher. The weekly chart is giving us mixed readings. We remain in a long-term downtrend with the downtrend line at 74.20. The 20 day moving average is at 74.101 on the weekly chart. The US Dollar index has remained below the 20 day moving average for a long time. The Thomas DeMark Expert indicator is overbought and continues to point higher. The stochastic indicator, our own indicator and the RSI are all pointing lower for the weekly chart. We are below the clouds for this time-frame. The monthly chart continues in a downtrend. We remain negative on the US Dollar index. We would change our minds should the index close above 74.20 and additionally will become increasingly more bearish should the index test the 71.050 and then the low of 70.805.

The Euro looks exhausted on the daily chart, however; appears to be making a rounding bottom. The Thomas DeMark Expert indicator is going sideways at overbought levels, the stochastic indicator, our own indicator and the RSI are all issuing a continued buy-signal for the June Euro. We remain in the clouds on the Ichimuko study, however; we are not far from breaking above the storm. The 5-period moving average is at 154.816. The top of the Bollinger band is at 158.84 and the edge is seen at 152.24. We closed at 155.55 right on, or close enough to be on, the 20 period moving average of 155.544. Both the stochastic indicator and the RSI are issuing a continued buy-signal for the weekly chart. The Thomas DeMark Expert indicator is issuing a sell-signal at oversold levels and our own indicator is about to issue a buy-signal but hasn’t issued it at this time. We are above the clouds for the weekly time-frame. Truthfully, looking at the weekly chart, one would believe that another run for the highs could be seen shortly. The monthly chart looks as though we have peaked with a 9-count. The stochastic indicator, the RSI, and our own indicator all are issuing a sell-signal from overbought levels. The Thomas DeMark Expert indicator is going sideways at neutral. 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 British Pound Sterling rallied above the downtrend line in the Friday session, but closed below that line. It looks as though, the British Pound Sterling is trying to build a base with an eye towards the 196 area. We remain below the clouds on the daily chart. All the indicators that we follow herein are issuing a continued buy-signal on the daily chart. The 5-period moving average is at 194.46. The top of the Bollinger band is at 199.154 and the lower edge is seen at 193.218. The weekly chart shows that we are range-bound with the high of 202.30 from the week of March 14 and a low of 193.30 seen the week of February 22. The stochastic indicator and our own indicator are curling to the upside, on the weekly chart, but have not issued a buy-signal. The RSI, for the weekly chart has issued a buy-signal. The Thomas DeMark Expert indicator is not issuing anything of value for this time-frame. Although the weekly chart shows that the British Pound Sterling is in a downtrend, we have a differing view when looking at the point and figure chart which tells us that we are in an uptrend. The monthly chart clearly defines the range seen in the other time-frames.

The Canadian Dollar printed a high for the week in the Friday session, and reversed, closing lower on the day. This is not bullish behavior. The stochastic indicator is issuing a sell-signal, however; the other indicators that we follow are not in agreement and are going sideways. It looks as though we will have trouble getting thru the 100.02 level. A break below 97.50 could shake out some weak longs and force this market lower. The 5-period moving average is at 99.71. The top of the Bollinger band is at 100.24 and the lower edge is seen at 97.807. The weekly chart is coiling. The indicators for the weekly chart are all positive. We are in the clouds for this time-frame. The monthly chart is range-bound. All the indicators that we follow are issuing a mild sell-signal for the monthly time-frame.

The S&P 500 enjoyed a week-long rally taking it nearly to the two hundred day moving average of 1444.304. (Actually, the number is slightly different if, you don’t use all the sessions –both ring and electronic.) All the indicators that we follow are overbought. The Thomas DeMark Expert indicator is exceedingly overbought yet continues to issue a buy-signal. The stochastic indicator and our own indicator are curling over to the downside but have not issued a sell-signal. The RSI is just hanging out near overbought levels, and is going sideways. The 5-period moving average is at 1413.52. The top of the Bollinger band is at 1428.267 and the lower edge is seen at 1372.322. The 50 day moving average is at 1363.180, which is a level where support will enter the market. We believe that we will remain stuck between the 200 day moving average and the 50 day moving average until, or unless something moves us out of that range. It could be either exceedingly good news or a real dose of bad news. We are above the clouds on the daily chart. At the very least, we would expect to see this market revert to the uptrend line. The uptrend line on the weekly chart for this coming Friday is at 1404.83. We find the market grossly overbought on the weekly chart. The stochastic indicator, our own indicator and the RSI continue to point higher, but the Thomas DeMark Expert indicator is issuing a sell-signal from an overbought level. We are below the clouds on the Ichimuko study for the weekly chart but above the clouds on the monthly chart. When looking at the Market Profile chart, one sees that a close below 1396.80 will bring trouble to this market. It is interesting to note that 1414 and 1398 are support levels when viewing the point and figure chart.

The NASDAQ 100 broke above and remained above the 200 day moving average for the entire week. The only troubling sign on the chart is a doji candle on Friday. Doji candles tell us that the market is in transition and could change direction. The Thomas DeMark Expert indicator is overbought and pointing higher. The stochastic indicator, our own indicator and the RSI are all overbought. Both the stochastic indicator and our own indicator are curling over to the downside and will issue a sell-signal probably in the Monday session. Naturally, we are above the Ichimuko clouds. The 5-period moving average is at 2014.45. The top of the Bollinger band is at 2046.513 and the lower edge is seen at 1879.38. The Market Profile chart warns us that should we trade below2015.90, we could quickly return to 2004.50. The indicators on the weekly chart are overbought. The Thomas DeMark Expert indicator has issued a sell-signal, but the other indicators all continue to issue a buy-signal for the weekly time-frame. We are in the Ichimuko clouds on the weekly chart, although on the monthly chart, we are above the clouds. All the indicators on the monthly chart are positive.

The Russell 2000 expanded the Thursday range in the Friday session piercing the upper edge of the Bollinger band, after having removed the lower print of the Thursday session, only to end the day below its opening. This left a candle showing an expanded range on the chart. The stochastic indicator, our own indicator and the RSI are all uniformly issue a sell-signal at overbought levels. The Thomas DeMark Expert indicator continues to issue a buy-signal at overbought levels. The 5-period moving average is at 737.66. The top of the Bollinger band is at 744.34 and the lower edge is seen at 703.35. The 200 day moving average for this index is at 749.89 and the 50 day moving average is at 704.20. These two levels should act as resistance and support for the Russell 2000. All the indicators that we follow herein are overbought on the weekly chart yet, none is issuing a sell-signal. It would not be surprising to see this index attempt a run to 753.17. We are below the clouds on the weekly chart and above the clouds on a monthly chart. The small cap index underperformed the other indices in the Friday session. Remember, this index usually leads the charge to the upside and somehow, it is not doing so this time around.

Don’t call commodities dead! The continuous commodity index enjoyed a rally in the Friday session. The stochastic indicator, the RSI and our own indicator all are issuing a buy-signal from the positive side of neutral. Thus, we see that buy-the-dips crowd is out there nibbling on every decline. The 5-period moving average is at 547.048. The top of the Bollinger band is at 556.77 and the lower edge is seen at 529.38. We find ourselves above the Ichimuko clouds on the daily chart. We do have signs of exhaustion on the daily chart. Our comfort zone according to Market Profile is bounded by 556.20 on the upside and 535.70 on the downside. Further, a move below 540.68 could cut the legs from this rally and weigh the market towards 523.37. The weekly chart shows a rising wedge with a 10-count. The stochastic indicator, our own indicator and the RSI are all issuing a sell-signal on the weekly chart. The Thomas DeMark Expert indicator is going sideways at an overbought level. The monthly chart shows the indicators more mixed, however; we are above the clouds and becoming increasingly narrow telling us that we will break to one side or the other.

July sugar remains neatly tucked under the downtrend line which is at 11.29 for the Monday session. The aggressive decline seen in the Tuesday session left many of the participants gasping. We find the market well below the Ichimuko clouds. It is important that sugar remain above the horizontal line at 10.85. All the indicators that we follow herein are issuing a buy-signal all are issuing that signal from oversold levels. The 5-period moving average is at 11.19. The top of the Bollinger band is at 12.86 and the lower edge is seen at 10.68. The weekly chart shows a continued liability to the downside. The indicators are all pointing lower. The point and figure chart shows that sugar is in a neat and continued downtrend.

July cocoa is trying to hold its ground and advanced in the Friday session. It is important for July cocoa to remain above 25.46. The stochastic indicator, the RSI and our own indicator are issuing a buy-signal. The Thomas DeMark Expert indicator is continues to issue a sell-signal, albeit at oversold levels. The 5-period moving average is at 26.65. The top of the Bollinger band is at 30.38 and the lower edge is seen at 22.62. The downtrend line for the Monday session is at 27.26. The market seems to be thinly traded and sporadic. We do remain above the Ichimuko clouds on the daily, the weekly and the monthly charts. The weekly chart has a bearish engulfing candle. The indicators are all pointing lower on the weekly chart. The daily is positive but the weekly chart is not so, make sure your trades are short and your stops are tight.

July coffee is back in its trading range of 142.85to 128.40. The uptrend line for the Monday session is at 133.95. The 5 period moving average is at 137.42. The top of the Bollinger band is at 139.70 and the lower edge is seen at 127.73. The stochastic indicator, the RSI and our own indicator all are issuing a fresh buy-signal at, overbought levels. The Thomas DeMark Expert indicator is issuing a sell-signal from overbought levels. We are below the Ichimuko clouds on the daily chart, but above the clouds on the weekly and monthly charts. All the indicators that we follow herein are positive on the weekly chart all issuing a continued buy-signal. We remain cautiously bullish coffee.

Frozen Concentrated Orange Juice is grossly oversold yet, continues lower. Perhaps the oncoming hurricane forecast will offer this market some support, not that their forecasts have been anywhere close to correct. The indicators are all oversold with only the RSI pointing lower. The 5-period moving average is at 111.90. The top of the Bollinger band is at 126.26 and the lower edge is seen at 109.13. We are below the Ichimuko clouds on the daily and weekly charts but above the clouds on the monthly chart. The uptrend line on the weekly chart has been broken leaving a really large red candle on the weekly chart. We are oversold and pointing lower as measured by the indicators. The monthly chart warns that we could return to 94 and then 87….yikes.

July cotton seems to be trying to make a bullish stand on the chart. The stochastic indicator, our own indicator and the RSI are all pointing higher. The 5-period moving average is at 70.95. The top of the Bollinger band is at 84.89 and the lower edge is seen at 70.04. The indicators for the weekly chart are also positive. So long as the low of 68.52 is not violated, we believe that cotton will try to regain some of its lost ground.

Crude oil gapped higher in the Friday session and never returned to close the opening gap. This market, although grossly overextended, continues to trade higher. Although the market is grossly overbought, the indicators continue to point higher. It seems as though, the buy-the-dips crowd is in control here causing us to worry what happens when they go away. Will there be a vacuum whooshing sound as this market retreats or, will the crowd continue to support this market. The 5-period moving average is at 124.93. The top of the Bollinger band is at 128.54 and the lower edge is seen at 112.17. Should this market retreat to 111.80 it will find support. Can we see crude oil higher, you bet we can. We believe that the upper edges of this rally will find itself at 138 and then 150. We believe that we are in the nineth inning of the game which could go into overtime. Are we willing to short crude, no way! We would consider buying some cheap puts, as a gamble only.

We are not gold bugs but we do like this market. We are overbought and getting more overbought with each rally. We remain below the Ichimuko clouds. The 5-period moving average is at 880.18. The top of the Bollinger band is at 917.94 and the lower edge is seen at 847.32. We believe that this current rally can take us to 947 or so. The indicators on the weekly chart are all positive. Gold looks as though it is forming a bottom and will continue upwards.