The Option Queen Newsletter

The debt crisis in the United States will not disappear with the bail-out of Freddie and Fanny.  Further, the bail-out designed by our elected representatives and senators, will be with significant cost to the tax-payers of this country.  The next and more pressing question that must be asked is–who else will be bailed out, and, while you are there, why not bail all of us out, flatten our debt and let us start all over again?  Why one and not another, why not bail out the little home-owner who is in debt up this his eyeballs.   Why not bail out failing industries, why not bail out those who bought stocks that went down instead of up.  Just bail everyone out and start over again, you know, with a clean slate.  Favoritism isn’t democratic!
 
As we bail-out things like Freddie and Fanny, we destroy our currency.  While the Chairman of the Federal Reserve and the Secretary of the Treasury jaw-bone the value and support of the US Dollar, the actions of the bail-outs reduce the value of the currency.  Thus, we advocate being long gold, which should take the US Dollar’s place as a reserve currency, at least silently.  
 
We have noticed that there quite a lot of new cars on the roads lately.  With the consumer allegedly “tapped out” we wonder where all the money is coming from?  Is it the sale of the family SUV for an economical sedan or, are the car salesmen actually making deals that are so good that the consumer can’t pass it up.   We Americans love to spend money, and it makes us feel better.  Are we willing take on more debt to feed our shopping needs?  In some ways, the answer is yes.  As depression about finance wears us down, the urge to go out and just buy something becomes an obsession.  Finally, we break down and go out and buy something then, feel the regret later as we pay yet another credit card bill. 
 
As to the markets, the rally celebration continued into the expiration of options on Friday, carrying the market well off its bottom and removing any loss for the week, adding the first weekly gain in six weeks.   We do have more room to the upside with stopping points at 1278.75, 1286.25 and 1294.75.  If we can get thru 1286.25 we will move swiftly to the 1329.50 area and find some further resistance at 1347.50.  All of these bounces are within the context of a bear market rally, not a renewed bull market.  To add fuel to the fire of the burning bull market, we are no longer oversold and, on a daily chart, are on the overbought side of neutral.  That said, there is more room to the upside, but we expect this rally to burn itself out within a few days.  We remain below the Ichimuko clouds and much like clouds in the sky, they are an omen of possible showers.  The weekly chart shows a buy-s et-up done and a need to close above 1263 to initiate that position.  We also have a 9-count on the weekly chart.  
 
It is interesting to note, that the S&P 500 closed up in the Friday session while both the NASDAQ and the Russell 2000 did not.  That is the exact opposite of the closing seen in the previous Friday. 
 

Monday:  June leading indicators are released at 10:00 and earnings from Apple, Bank of America, Merck, American Express etc.  

Tuesday:  Philadelphia Fed President Plosser speaks and we continue with earnings from WaMu, Fifth Third Bancorp etc. 

Wednesday:  Fannie and Freddie’s Congressional vote, BeigeBook is released at 2:00 and we continue with earnings. 

Thursday:  June existing home sales are released at 10:00, and New York Fed President Geithner testifies on the “Hill.” 

Friday:  June durable goods are released at 8:30, July Michigan Sentiment is released at 10:00 and July new home sales are released at 10:00. 
 
The US Dollar index rallied for the last three days of the week, but left an inside day candle on the chart in the Friday session.  The stochastic indicator and the RSI are both issuing a sell-signal, however; the Thomas DeMark Expert indicator is issuing a continued buy-signal.  Our own indicator is flat.  The 5-period moving average is at 72.311.  The top of the Bollinger band is at 73.695 and the lower edge is seen at 71.890.  The downtrend line for the Monday session is at 72.70.  We will see a point of inflect betwe en Tuesday and Wednesday at 72.61.  We are below the Ichimuko clouds.  The Market Profile chart tells us to be cautious below 71.75.  Should we trade below that level, we will see some sell-stops triggered and lower prints.  The weekly chart seems to be coiling, getting ready for a major move.  This move will likely have less resistance if it were to the downside, any upside moves will be met with selling, keeping the index from really heading meaningfully higher. 

 
The Euro remains comfortably above the uptrend line and above the Ichimuko clouds.  The uptrend line is at 157.54, for the Monday session.  The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal.  The 5-period moving average is at 158.21.  The top of the Bollinger band is at 159.36 and the lower edge is seen at 154.86.   From a fundamental view, we don9 9t like the Euro, however; technically it remains positive for the moment. 
 
The S&P 500 has moved above the short-term downtrend line and is approaching some resistance at the 20 day moving average of 1267.16.  The 5-period moving average is at 1238.95.  The top of the Bollinger band is at 1323.98 and the lower edge is seen at 1210.33.  All the indicators that we follow herein are issuing a continued buy-signal.  We remain below the Ichimuko clouds.  We will have resistance at 1275.50 and support at 1236.75.  Here is a warning light; should we trade below 1203.01, we will visit 1182.62 under that level, look out below!  The weekly chart looks as though we have put in a short-term bottom for now.  All the indicators that we follow herein are uniformly issuing a buy-signal for the weekly time-frame.   The point and figure chart tells us that we need to close above 1263 and change. 
 
The NASDAQ 100 chart doesn’t look as good as that of the S&P 500.  The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal, only the Thomas DeMark Expert indicator is issuing a buy-signal.  We seem to be trapped in a trading range bounded by 1887.25 on the upside and 1765.25 on the downside.  The 5-period moving average is at 1822.95.  The top of the Bollinger band is at 1921.04 and the lower edge is seen at 1777.93.  If we can trade above 1878.24 we will rally to at least 1921.92.  We remain below the Ichimuko clouds.  The weekly chart looks as though this market is trying to find a temporary bottom.  The stochastic indicator and our own indicator are both issuing a buy-signal for the weekly time-frame. 
 
The Russell 2000 managed to close above the 20 period moving average.  The 5-period moving average is at 678.06.  The top of the Bollinger band is at 718.78 and the lower edge is seen at 646.39.  The stochastic indicator and our own indicator are about to issue a sell-signal.  The Thomas DeMark Expert indicator continues to point higher albeit at overbought levels.  The RSI is going sideways.  We remain below the Ichimuko clouds on the daily and weekly chart but above the clouds on the monthly chart.  The Market Profile chart tells us that if we can trade above 697.64 that we will trade back to 716.67 and perhaps higher.  On the other hand, should we retreat, we need to watch the 658.70 level and more importantly the 646.28 levels.  Below the 646.28 level we are likely to see downdrafts as sell-stops become elected.  When reviewing the weekly chart we notice four probes to the downside, the last of which was seen this past week.  The good news is that each probe has been slightly higher20than the previous probe.  The stochastic indicator, the RSI, and our own indicator are issuing a buy-signal on the weekly chart.
 

The rally in the Continuous Commodity index was on vacation this past week.  The index was down for all five trading days.  All the indicators that we follow herein are issuing a continued sell-signal albeit at oversold levels.  Unless this index rallies quickly, we will have a downside risk to 547.69.  The 5-period moving average is at 578.83.  The top of the Bollinger band is at 617.33 and the lower edge is seen at 565.43.  The uptrend line on the weekly chart is at 557.47.  We need to see this market trade above 587.06 to negate this downdraft.  All the indicators that we follow are issuing a solid sell-signal for the weekly time-frame.

Crude oil plunged into the Ichimuko clouds.  These clouds are like a fog and tell the investor that the future is not clear enough to trade on.  Thus we are warned not to trade when in the clouds.  It also represents a very undecided period.  The stochastic indicator and the RSI are both extremely oversold and are bending upward, however; they have not issued a buy-signal.  The 5-period moving average is at 135.42.  The top of the Bollinger band is at 148.31 and the lower edge is seen at 129.63.  The crude oil market closed the Friday session near the lows of the day.   We had support at 128.14, under that level there would be a scary drop to 122.05 then 117.90 and below that…..108.95.  On the weekly chart we have broken the very steep uptrend line.  The stochastic indicator and the RSI are both pointing lower for the weekly time-frame.  We remain above the Ichimuko clouds for the weekly, monthly, and quarterly time-frame.  It sh ould be a very interesting week in the crude oil market.
 
Gold retreated in this past week’s trading but remains above the uptrend line.  We are above the Ichimuko clouds on the daily chart.  The stochastic indicator and the RSI are both issuing a solid sell-signal for gold.  The 5-period moving average is at 968.76.  The top of the Bollinger band is at 990.00 and the lower edge is seen at 882.31.  All the indicators for the weekly time-frame are pointing lower.  We remain in an uptrend and continue to believe that we can challenge the previous high; all we need to do is to trade above 985 to open the door to the highs.