Option Queen Letter

Here is a question for you to ponder, if the banks are public enemy number 1, why is it that we the people have been funding their fun? Are we the people making money on the spread or a piece of the spread on lending that the banks are making and if not, why not? Remember, we the people helped them out of their financial crisis so; we the people should enjoy some of the prosperity that these banks are enjoying. Here is a quote from THINK GREECE, IT’S FRIDAY by Michael Santoli, Barron’s Magazine May 17, 2010. “Goldman Sachs (GS), JP MORGAN Chase (JPM) and Bank of America (BAC) – disclosed in filings that their trading operations were profitable each and every day in the first quarter.” After all, how many of us could say that we made money every day on our investments? Where is our dividend or piece of the American pie?
Here is a fact that every investor must understand. Your computer is slower than the big computers you are trading against. You cannot be faster at scalping than they are so, you answer must be to develop a trading plan and a strategy. We are not saying buy and hold, but rather know where you want to buy and where to take profits or where to sell and where to cover. Would you walk across the street without looking to see if traffic is approaching so why buy without understanding or, at the very least looking at the chart to make sure you are pricing your long or short appropriately.
Which markets have too much agreement to one side of the trade? There are several that jump out of the pages when you look; one is the US Dollar index. There are simply too many US Dollar bulls in the market. Can this continue? Well of course it can and likely will, but there will come a time when, the US Dollar will have enough of a drop to scare the weak handed bulls out of the trade. The same trade goes for gold, which is acting more like a currency and fear trade than an inflation hedge. Crude oil and the Euro have too many bears and will have the opposite problem. No, we are not telling you to buy crude oil and Euros but we are telling you that these trades are lopsided and will likely reverse.
Tuesday: April housing starts are released at 8:30 and April PPI is released a t8:30.
Wednesday: April CPI is released at 8:30 and the minutes of the FOMC two day meeting are released at 2:00.
Thursday: April leading indicator index is released at 10:00 and the May Philly Survey is released at 10:00.
The US Dollar index has been on an upside tear in recent days. We have a 9-count on the chart and signs of exhaustion. The problem with this is that the market can and likely will continue on its upside blow off for a while longer. Seriously, with the euro under fire, the Greek debt crisis not yet resolved and the other problems waiting in the wings, there seems to be good reason to either buy gold or the US Dollar. That said, we noticed that the boat is getting lopsided and there are far too many euro bears crowding the side of the boat. When too many agree, it may be time not to agree. That doesn’t mean jumping on the opposite side but rather removing your short position on the euro. The 5-day moving average is at 85.097. The top of the Bollinger band is at 86.324 and the lower edge is seen at 79.927. Although we are overbought as measured by all the indicators that we follow herein, all indicators remain on a buy. Naturally, we are above the Ichimoku Clouds for the daily, weekly and monthly time-frames. We are overbought on the weekly time-frame and heading there on the monthly time-frame. The next targets are 87.22, 87.84, 89.47 and 89.71.
The S&P 500 futures contract retreated in the Friday session broadcasting the markets fear of something bad happening over the weekend when a trade could not be made. Naturally, we should see a relief in the Monday session. The downtrend line is at 1178.48 and we must close above that level to resume the bullish view of this market. Not one of the indicators that we follow herein is issuing a buy-signal. The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal. The Thomas DeMark Expert indicator is going flat at overbought levels. We closed inside the Ichimoku Cloud on the daily time-frame; we are above the clouds for the weekly time-frame and are below the clouds for the monthly time-frame. We are entering an options expiration week, which could bring with it increased volatility. It will be important for the S&P 500 to remain above 1125 or risk a return trip to the 1100 area.
The NASDAQ 100 retreated in the Friday session but fell more than the S&P 500 did. The NASDAQ 100 must stay above 1887.40. We closed inside the Ichimoku Clouds for the daily time-frame. We are above the clouds for the weekly time-frame and just at the lip of the clouds for the monthly time-frame. The 5-day moving average is at 1940.90. The top of the Bollinger band is at 2093.97 and the lower edge is seen at 1870.84. The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal. The Thomas DeMark Expert indicator is going flat at over bought levels. It really looks as though this index has some work to do rebuilding confidence. The downtrend line is at 1991.27. The weekly chart does not look as awful as the daily chart does. We closed up on the week but we have signs of exhaustion. The indicators are curling to the upside and will likely issue a buy-signal by the end of the week.
The Russell 2000 declined in the Friday session. The 5-day moving average is at 699.90. The top of the Bollinger band is at 755.32 and the lower edge is seen at 666.24. The stochastic indicator, the RSI and our own indicator all are issuing a sell-signal on the daily chart. The Thomas DeMark Expert indicator continues to issue a buy-signal at overbought levels. We are above the Ichimoku Clouds for the daily and the weekly time-frames. The market must stay above 685 or risk a return to 678, 670 and 667. If we don’t remove 703 in short order, we could be setting ourselves up for another spill. Time will tell on this one.
Crude oil has been declining with the continued fear of an economic slowdown re-emerging as caused by the austerity programs needed to resolve some of the euro-worries. This is further amplified by the worries that the Asian communities are trying to slow down their growth to a manageable number. All of this is weighing on the crude oil market. Actually, until or unless we break much below 69 +/- there should be no worries about crude oil. We are just in a pronounced trading range. Of course should be break below 69, we will move out of that trading range and could be in a wilder ride. The daily chart is below the Ichimoku clouds. We are above the clouds on the weekly time-frame but in the clouds for the monthly time frame. We are oversold on the daily and weekly time-frames. We do not see even a bend in the indicators that would lead us to believe that we are at a bottom. We are grossly oversold. The 5-day moving average is at 74.96. The top of the Bollinger band is at 89.41 and the lower edge is seen at 72.03. We closed below the lower band and likely will not be able to stay there for very long. This should be an interesting week for crude oil.
It would appear that everybody loves gold. When this occurs, we get somewhat uncomfortable about our long gold stance. This could be a good time to remove some of the profitable positions in gold. The 5-day moving average is at 1224.24. The top of the Bollinger band is at 1180.49 and the lower edge is seen at 1116.88. All the indicators that we follow herein are issuing a sell-signal. We certainly would not go short this market but would consider removing some profits. We are above the Ichimoku Clouds on the all time-frames. If we trade above 1250, this market will have no resistance overhead and will likely cause the shorts to cover and the market to whoosh to the upside. After the initial piling into the trade, the market will likely return to the breakout level allowing the more conservative investor a chance to enter this market.

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