Archive for June, 2012

Sunday, June 24th, 2012

There will be no Option Queen Letter next weekend.

Let us think about money, for a change. If there were large or even small sums of money under your control parked in Greek, Spanish, Italian, Irish, or Portuguese Banks, would you move those funds to, say England or even the USA? Most would agree not to keep funds in places where they could be subject to risk. Even France is a bit scary some times. So the flow of funds finds its way to Switzerland, England, and the USA. That naturally helps our markets and we rally. Why not send the money to Germany, well they continue to be part of that huge mess and we believe if money were to be moved it would be out of the Eurozone completely, just in case the “black swan” reappears and something really bad happens. That is not to say that something bad happening in the Eurozone will not have a tidal effect on our markets, yes, it will, but in the end you assets will be much safer out of the line of fire than on the firing line.

Monday: May new home sales are release at 10:00.
Tuesday: April S&P/Case-Shiller home price index is released and June consumer confidence is released at 10:00.
Wednesday: May durable goods are released at 8:30.
Thursday: 1st quarter GDP.
Friday: May personal income/consumption is released at 8:30, Chicago purchasing managers index is released at 9:45, and June Michigan sentiment is released between 9:45 and 10:00.

After bouncing off of the old December 2010, January 2011 highs of 81.362 and 81.565 as support on June 18th, 19th and 20th, the US Dollar Index printed a bold candle back into a congestion zone and finished the show on Friday by leaving doji. We feel that these downside support levels will continue to hold in the future while the upside will continue to be bound by 83.308 and 83.632 for the short run (levels strongly cemented in this index’s history going back to August 2010). The stochastic and RSI indicator broke up out of a downward trend marked by lower lows and lower highs but have quickly hooked over showing a relatively week move. Our own indicator however continues to issue a buy signal. The upper Bollinger Band is at 83.1899 and the lower band is at 81.6072 and they appear to be slowly expanding. The index is just breaking above the 20 period simple move average which is at 81.936 and above the five period exponential moving average which is at 82.2085. A daily chart indicates that we may expect the index to back and fill bouncing around between the levels noted earlier.
A daily .5% x 3 Point and Figure, beyond showing that we are clearly in an uptrend, has an activated upside target of 85.96 with no current downside vertical targets. We would look for this target to be achieved with a break above the 83.43 level (a zone that has shown itself to be formidable resistance). We would become nervous and short term bearish on the index with a break below 81.37, which would mark a 50% retracement of the previous column indicating a pole, with a likely move back to the 78.97 level.

A weekly candlestick chart of the index shows it to be in a clear uptrend, with the last candle being a bullish engulfing pattern. With that in mind, all indicators that we follow are in the late stages of a buy signal, with the stochastic and our own indicator on the verge of crossing over to issue a sell signal. Long term the index looks as though it is making its way to 83.68, the old high of June 1st 2012 and August 27th, 2010. The consistency with dates and prices across time frames and chart types reinforces their strength.

The S&P 500 rallied in the Friday session regaining very little of what was lost in the Thursday session. This index did manage to close above the uptrend line of 1322.83. The downtrend line is at 1352.15 and as it looks at this moment it will meet the uptrend line by Friday or perhaps next money. That will cause a point of inflection which will lead to a violent reaction. To negate this possibility, we need to see the market either trade above the downtrend line or trade below the uptrend line by Friday-Monday. We are below the Ichimoku Clouds for the daily time-frame but remain above the clouds for both the weekly and the monthly time-frame. The 5-period exponential moving average is at 1331.67. The top of the Bollinger band is at 1361.22 and the lower edge is seen at 1275.94. Right now, this chart looks like a failed inverse head-and-shoulders pattern. Should the action of the index remove the downtrend line, it will scare some of the shorts into covering their positions. The Market Profile chart is telling us that above 1352 the market will likely run to the upside. The flip side tells us that below 1252.80 we will feel the effects of gravity. I would also argue that below 1278 there will be lots of trouble for the bulls in the market and this index will likely retreat further. The stochastic indicator is curling to the upside and within a day or so should issue a buy-signal. Our own indicator is a little slower than the stochastic indicator and looks very much like the stochastic indicator. The RSI is bending to the upside at neutral and the Thomas DeMark Expert indicator is issuing a sell-signal.

The NASDAQ 100 rallied in the Friday session regaining some of the lost gound from the Thursday session. We are below the Ichimoku Clouds for the daily time-frame, but remain firmly above the clouds for the weekly and the monthly time-frames. The 5-period exponential moving average is at 2574.79. The upper edge of the Bollinger band is at 2624.59 and the lower edge is seen at 2462.73. The upward tilting channel lines are 2653.41 and 2563.33. there is a horizontal line at 2628.25 which needs to be remove if we are to see shorts get nervious and begin to cover. Both our own indiator and the stochastic indicator are curling to the upside but are several days away from issuing a buy-signal. The RSI is pointing to the upside having bounced from the neutral line. The Thomas DeMark Expert indicator is issuing a solid sell-signal. The Market Profile chart clearly shows that the market could melt to the upside above 2619.60 and on the other side of the coin could clearly plunge below 2408.70. There you have it, a trading range.

The Russell 2000 tried to take back 50% of the Thurday loses in the Friday session but was unable to hold on to those gains. That said, the rally was respectable. The uptrend line is at 763.000 There two horizontal resistance lines one at 786.20 and the other ar 788.30. The 5-period exponential moving average is at 769.01. The top of the Bollinger band is at 786.44 (there is that number again) and the lwoer edge is seen at 736.53. We are below the Ichimoku Clouds for the daily time-frame and remain above the clouds for the weekly time-frame. The Market Profile chart shows that we are in a trading range of 785.90 to 722.10. Naturally any movement outside of those number will force movement in the direction of either the break out or the break down. The point and figure chart is a bit more troublesome. The stochastic indicator and our own indicator both will issue a buy-signal in the next session. The RSI is pointing higher slightly above the neutral zone. We are below both the 50 and the 200 day moving averages which, by the way have crossed. The 50 day moving average is at 777.01 and the 200 day moving average is at 777.15. Not a good thing.

Crude oil has the ugliest chart that we have seen in a very long time. This chart looks like it has fallen off a cliff. The decline has been nothing short of dramatic. The only nice thing we see on this chart is the large green candlestick seen as a result of the Friday trading session, likely short covering in front of a weekend. We are below the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is at 80.83. The top of the Bollinger band is at 90.33 and the lower edge is seen at 77.93. Market Profile shows us that above 86.62 we will see further short covering while belw 77.39, it is likely that the shorts will press their positions.

Gold is trading inside a box or rectangle. The lower edge is seen at 1526.70 and the upper edge is seen at1639.70. Until or unless it breaks out of this box, it will remain stuck in a range. The 5-period exponentiao moving average is at 1589.52. The top of the Bollinger band is at 1649.40 and the lower edge is seen at 1548.68. We are below the Ichimoku Clouds for the daily and weekly time-frames but are above the clouds for the monthly time-frame. Although the indicators that we follow are beginning to curl to the upside, they are far from issuing a buy-signal. The Market Profile chart shows that it is critical for this market to stay above 1543.30 and certainly 1525. Below that level we see the next level of support at 1486 give or take a couple of points.