The Option Queen Newsletter

Crude oil bingo, a new board game available at your local brokerage will keep you guessing and provide hours of entertainment.

 

From last week’s Option Queen letter:  “Would we buy the index now?  No, but we will be buyers once we break to the upside of the range.  On the other hand we continue to believe that there is yet another accident hiding in the wings somewhere which will lead to a test of that low, again.”  Once the 50 day moving average was broken, the market keeled over and dropped.  It is interesting to note, that the 50 moving average actually supported the market for a while, then the Friday jobs data was released and traders ran for the exits.  There was a triple whammy for the Friday session.  First, we broke below the 50 day moving average, second we had a lousy jobs report and third, the market was buzzing with a rumor of possible hostilities in Iran scheduled for this weekend. 

Rumors usually don’t pan out so, if it was a rumor that sent the averages plummeting, than the fact that the weekend was uneventful should send the averages back to the upside.  Then there was the 11 dollar sprint in crude oil.  Another important point to remember when looking at the S&P 500 is that until we remain below the 50 moving average for say two days, the event will have less value as a bearish indicator.  Should we, on the other hand, remain below the 50 moving average, then we will have that 50 moving average as resistance on the upside.  This week’s action should have an upside bias for the June contract as players roll to the September contract. Remember, as of Thursday, September will be the front month.

An interesting new toy make for the gamer market may have applications for the trader.  A headset made by San Francisco Emotiv Systems might just be the next power plug for the day trader.   This headset allows the wearer to command action via electrical signals thus; you probably could adapt the system to the market, and buy or sell by just concentrating on that thought.   How far have we moved from the paper buy order handed to the clerk at the desk who typed it into the DOT system!

It looks as though volatility is back!  For a while there, we tipped into the “Goldilocks” syndrome, but it appears that we have broken that complacency, well so far it does.  Friday the VIX soared 4.93 pushing the VIX beyond the upside probe seen in the Wednesday session.  We do see some resistance at 24.35 but should we clear that level, we will return to 26.85.  The VIX cleared its 200 day moving average in the Friday downdraft the question is will it remain above that level or, more probably, return to the 22.13 level.

Another interesting chart is that of the Transportation Index which took it on the chin as crude oil rallied.  We have noticed that this index has been behaving independent of crude oil on many days.  We have noticed that even when crude rallies that this index rallies.  Perhaps this index is voicing the opinion that the economy is expanding.  Friday’s 242.69 decline was not great enough to take this index below the uptrend line of 5249.  We have plenty of room to the downside for this index.  Keep your eye on this one! 

Monday:  Pending home sales are released at 10:00, New York Fed President Geithner speaks, and Fed Chairman Bernanke speaks both Fed officials to speak in the evening. 

Tuesday:  April international trade is released at 8:30, the Bank of Canada releases its interest rate decision (a reduction is expected), and Dallas Fed President Fisher speaks. 

Wednesday:  Fed releases the Beige Book at 2:00, Fed Governor Kohn speaks, and the CFTC hosts confab regarding international energy and discussing energy market manipulation. 

Thursday:  May import prices and May retail sales are released at 8:30, and April business inventories are released at 10:00.  

Friday:  May CPI is released at 8:30 (yikes!) along with its real hourly wage component.

 

The US Dollar index looks like a sine wave, rolling over on the upside.  We heard from Chairman Bernanke this past week expressing the importance of a strong dollar, but then the economic news got it the way and low and behold, the US Dollar index give up the entire Bernanke rally and then some.  All the indicators that we follow herein are issuing a continued sell-signal with plenty of room to the downside.  The 5-period moving average is at 73.06.  The top of the Bollinger band is at 73.846 and the lower edge is seen at 71.876.  We assume that the market will trade down to 71.97 where it will find support.  Should that level fall, we will open the door to the previous low and probably lower lows.  The weekly chart looks friendlier.  This time frame shows that the action in the US Dollar was nothing more than consol dative.  The warning seen here is that should we close below 71.95, we will open the door to the lows and further pain for the bulls.  The indicators for the weekly chart are more mixed.  The Thomas DeMark Expert indicator has a slight upside bend, the stochastic indicator is going sideways, the RSI is pointing lower and our own indicator is issuing a solid sell-signal.  The downtrend line on the weekly chart is at 77.31.  We are below the Ichimuko clouds for the weekly and monthly time frame and in the clouds for the daily.  We continue cautious on the US Dollar Index.

 

Remember also that the US Dollar index is in its roll period which adds to confusion and volatility.

 

The S&P 500 left a bearish engulfing candle on the chart as a result of the Friday tumble.  All the indicators that we follow herein are issuing a uniform sell-signal with room to the downside.  The 5-period moving average is 1390.78.  The top of the Bollinger band is at 1434.71 and the lower edge is seen at 1353.61.  The weekly chart shows a market continuing its roll over to the downside.  The indicators on the weekly chart are all issuing a sell-signal.  Last week’s events are a mere blip on the monthly chart.  The Thomas DeMark Expert indicator is issuing a buy-signal but all the other indicators are issuing a sell-signal for the monthly time-frame.

 

The NASDAQ 100 which seems to have led the parade to the upside, failed miserably in the Friday session.  All the indicators that we follow herein are issuing a uniform sell-signal leaving plenty of room to move to the downside.  The 5-period moving average is at 2009.95.  The top of the Bollinger band is at 2057.25 and the lower edge is seen at 1950.99.  The weekly chart remains overbought.  All but the stochastic indicator are issuing a sell-signal for this time-frame.  The stochastic indicator is going sideways at overbought levels.  The indicators on the monthly chart are yielding the same results as seen in the weekly chart.  The 200 day moving average on the daily chart is at 1972.26.  This should offer some support for the NASDAQ 100.

 

Although the Russell 2000 remains above the uptrend line on the daily chart, Friday’s action left a bearish engulfing candle on the chart.  All the indicators that we follow herein are issuing a continued sell-signal and all have plenty of room to the downside.  The 5-period moving average is at 745.08.  The top of the Bollinger band is at 755.90 and the lower edge is seen at 644.20.  The uptrend line for the Monday session is at 734.89.  The weekly chart is interesting, although most of the indicators are pointing lower; they are sort of on the flattish side.  This is a mild “I think maybe” type of signal.  The Thomas Demark Expert indicator is the sole indicator really giving a signal on the weekly chart and that signal says SELL!    The daily chart of the Russell 2000 remains above the Ichimuko clouds.  The weekly chart is below the clouds and the monthly chart above the clouds, go figure!

This is a shortened version of the letter this week which will be updated during this coming week.  I will be traveling to Austin, Texas to welcome to the family my grandson Martin who was born on Wednesday.