The Options Queen, Jeanette Schwarz has just released her first book:
The Options Doctor: Option Strategies for Every Kind of Market (Wiley Trading)
The cold winds have returned to the North-Eastern region of the United States, just as we all were about to sell our old winter clothing. We here, in this region, have been blessed with a balmy Winter, rather than our normally “cool’ experience. This week, we returned to what is: “normal.” So too, did the markets receive their dose of sanity, with some very slight retreats, which made their appearance, post earnings, this past week.
The companies that released their earnings; for the most part, published what were actually better than expected earnings; e.g.: IBM and APPLE; but those earnings were not enough to bolster the value of their shares and they were given a dose of: “buy the rumor, sell the fact” mentality, of Wall Street. The University of Michigan sentiment reading was down-right good; so was the Philly Fed and the Beige book. Apparently, the economy is just fine, thank-you. We had a week of many Federal Reserve speeches from various Federal Reserve Presidents. Most of these cooing doves, costumed themselves in hawk’s garb, lest we believe that they were getting soft on inflation; nothing like talking your book, which is apparently what these guys and gals were doing.
Meanwhile, crude oil broke the fifty dollar mark and the war in Iraq continues. Federal Reserve Chairman Bernanke gave his testimony in front of the Senate Banking committee. Interestingly, he is concerned about the approaching deficit, attributable to entitlement programs, when those aging “baby-boomer” begin to apply for benefits. That approach begins in three years, when the first of the group becomes 65. Chairman Bernanke called this time, “the calm before the storm.” Is that like former Federal Reserve Chairman Greenspan’s “Irrational Exuberance?” Just to remind you, that comment failed to stop the “bubble” from appearing. From that lesson, are we to believe that in three years, we are going to crash and burn? Interesting, yes and thought provoking.
Finally, it has been noticed by members of the press, the media and even (would you believe this one!) Congress, that there is a problem with middle-class America. It is becoming an endangered species. The population that was the “meat and potatoes” of our economy is fast disappearing. The rich are getting richer and the middle-class earners: poorer. The schism will grow and likely cause some tremors, in our society. This swelling group of hard-working Americans will start screaming for the opportunity to earn more and provide better, for their families. Tiffany, you have no problem, Wal-Mart, you are in trouble. Target, you still are okay and Costco; who doesn’t like Costco? The bad news with Costco is that you really aren’t saving money; you’re just buying MASS QUANTITIES OF STUFF. We did an actual price comparison between Costco and Pathmark for groceries, Pathmark was equal on most products and even cheaper, on some. Ah, but the Costco quality! Actually: we love the shopping experience at Costco, hate the check-outs, which are always jammed and the search for boxes to pack your stuff in, could be better. Perhaps they could sell milk cartons that you could stack, with wheels and handles so as to effortlessly boost sales of more stuff, to help the shopper to move his
MASS QUANTITIES OF STUFF to his waiting vehicle, in the jammed parking lot. Hummm: not a bad thought, eh!
We must remind our readership that we have not had a 10% correction in the indices, in a very long time. Remember, that as this rally continues without correction, the pain that will be felt upon the correction surely increases. Why? Because, currently, the “buy the dips” crowd is in control. These people do have a mentality to just buy every dip, thus to enjoy the rallies. The question you should ask yourself is: If I were a portfolio manager, buying the dips, where would I get scared of a flush-out? That is the point at which we will see the next 10% correction. In terms of the Dow Jones Industrials, if the market were to decline below 12,400.00, you would see some money removed. As to the
Standard and Poor’s 500 cash, a close below 1400, will become a trigger for further sales. The NASDAQ composite index-cash, shows that it will be scary if this index closes below 2400. The NASDAQ 100 shows that a close below 1731.71, will likely cause some heartburn for investors. Currently, we have lots of cash, propping up this market, but that will not continue forever. There will be a correction, and that correction will be painful.
The US Dollar index has been trying to continue its push, trying to expand the upside, but with seemingly heavy pressure, on each push. This has resulted in a gently-sloping chart, which appears to be rolling over to the downside. By Thursday of this week, we will have a point of inflection on the chart. More importantly, for the US Dollar to continue its upside progress, we must stay above 84.45. Should we close below this level, we will open the door to 83.93, as a minimum. The stochastic indicator is issuing a sell-signal, as is our own indicator. The RSI is gently sloping downward, pointing to lower levels. The Thomas DeMark Expert indicator is issuing nothing of value, going sideways at neutral.
The 5-period exponential moving average is at 84.72. The top of the Bollinger band is at 85.40 and the lower edge is seen at 82.84. The weekly chart has a doji candle. The stochastic indicator is issuing a fresh sell-signal. The RSI is also curling over and is now pointing down. The Thomas DeMark is overbought and pointing higher. Bottom line is that the indicators are overbought on the weekly chart and appears to be telling us that we will have a correction soon.
The Euro is trying to hammer out a bottom and is forming a rounded-bottom. We have a red:-nine count. The stochastic indicator is questionably issuing, a buy-signal. What is not questionable is that it is at oversold levels. The RSI is flat; the Thomas DeMark Expert indicator is flat. Our own indicator is issuing a mild buy-signal. The 5-period exponential moving average is at 1.29884. The top of the Bollinger band is 1.33319 and the lower edge is seen at 1.28670. Remember, as we edge higher, there is a gap overhead, which, at first, will offer resistance to the upside progress. That gap is at 1.31600 to
1.31950. The weekly chart looks as though we are trying to turn the market back, to the upside. This will be incorrect if the Euro closes below 1.29040. A close below that level will press the market into the congestion area of 1.2850, or so. The uptrend line on the weekly chart is at 1.2949.
The S&P 500 March futures contract had an inside day in the Friday session. The market is overbought, but continues to issue a buy-signal; when looking at the stochastic indicator, the RSI and our own indicator. The Thomas DeMark Expert indicator is issuing a sell-signal, at overbought levels. The downtrend line for the Monday session is at
1437.30. The 5-period exponential moving average is at 1435.26. The top of the Bollinger band is at 1444.20 and the bottom edge is seen at 1416.46. This past Monday, the S&P 500 made a run for the recent annual high, but failed to remove that high. This led to lower highs, for each of the days of this week. This does not mean that we were lower each day, but rather, that the highs were lower than, or equal to the previous high, printed. This action gives the chart a downtrend line. On the other hand, the past session’s low was higher than the previous low. The weekly chart looks as though the S&P 500 is stuck in a range and just hanging out, so to speak. The weekly indicators are overbought and are uniformly issuing, a sell-signal. The monthly chart is much like the weekly chart, but has added to the sell-signals, a sign of exhaustion.
The NASDAQ 100 March futures chart has a doji like candle, as a result of the Friday session. The stochastic indicator continues to issue a sell-signal, but appears to be curling to the upside. None of the indicators are oversold. The RSI is going flat and the Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period exponential moving average is at 1822.45. The top of the Bollinger band is at 1862.94 and the lower edge is seen at 1748.15. The weekly chart has yielded a very large red candle. The indicators are uniformly issuing a sell-signal. The monthly chart is overbought, by all measures.
The Russell 2000 is continuing the downtrend started on Monday, when the old high of 807.20 was challenged. The high of last week was 807.10, just a dime below the old high. That high was 807.10. The stochastic indicator is issuing a fresh buy-signal, at neutral levels. The RSI and our own indicator are joining in that signal; both, are at neutral levels. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period exponential moving average is at 789.08. The top of the Bollinger band is at 804.73 and the lower edge is seen at 777.50. The weekly chart looks as though the Russell 2000 is trying to expand the upside, but is having trouble doing so. The indicators that we follow are uniformly issuing a sell-signal. Only the Thomas DeMark Expert indicator is nearing oversold levels; the others are not even at neutral at this time, with lots more room to the downside. The weekly chart indicates that should 773.20 fall, we could have some near-term pain, with a possible flush-out to the downside. The risk is on the downside; not on the upside, which seems to have supply, every time we rally. The monthly chart is even more telling, with a risky 14-count. The indicators on the monthly chart are uniformly issuing a sell-signal, at overbought levels.
The Continuous Commodity Index is trying to break to the upside. After going sideways for most of the week, the Friday session closed above the resistance area and closed, positively, on the day. The stochastic indicator is issuing a buy-signal. Our own indicator is issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a buy-signal, at overbought levels. The RSI is pointing to higher levels. The 5-period exponential moving average is at 385.39. The top of the Bollinger band is at 398.88 and the lower edge is seen at 376.56. The weekly chart shows that the downtrend line is at 388.13. We need to see a close above this level to scare the shorts into covering their positions. We have a 5-count on the bottom. As to the indicators, they are really mixed on the weekly chart, with the stochastic indicator issuing a continued sell-signal, and the Thomas DeMark Expert indicator: a buy-signal, from oversold levels. Our own indicator and the RSI are both, flat-lining. The monthly uptrend line is at 378.50. So long as we stay above that level, we are fine. This number is for a month out, not the current number, which is 376.50.
March cocoa’s daily chart continues to look heavy. The indicators are uniformly issuing a sell-signal. The 5-period exponential moving average is at 16.06. The top of the Bollinger band is at 16.81 and the lower edge is seen at 15.72. We seem to be expanding to the downside. A retreat below 15.73 will cause acceleration to the downside; on the other hand, a rally above 16.20 will cause a rally. The downtrend line for the Monday session is at 16.20. The 9 day moving average is at 16.09, the 18 day moving average is at 16.25 and the 40 day moving average is at 15.98. The weekly uptrend line is at 16.04, a level the market needs to stay above. The chart shows that the market seems to be consolidating. We shall see.
March sugar tried to rally in the Friday session… We are beginning to see lots of switch-trading, as positions are moved from March to May. The Friday session was an inside day and reflected the dullness of the market, in front of a weekend. There is an impressive 8-count on the bottom. We do have a buy signal from the stochastic indicator, as well as our own indicator. There was a vicious rally in sugar in the last several minutes of trading on Friday. Not only were funds buying, but the trade bought, and of course, the locals covered their shorts, flattening their positions in front of a weekend. The 5-period exponential moving average is at 10.85. The top of the Bollinger band is at 12.28 and the lower edge is seen at 10.47. The 9 day moving average is at 10.97, the 18 day moving average is at 11.36, and the 40 day moving average is at 11.53. The weekly chart illustrated the probing behavior to the downside seen in the Friday session. The next level below Friday’s low of 10.62 is at 10.46. The chart isn’t pretty and indicates that we need to make a stand here and now. The indicators we follow are all oversold but only the stochastic indicator on the weekly chart is issuing a buy-signal. On the monthly chart, it is clearly shown that we are at levels which need to supported if; the bulls have any hope of regaining control of this market.
March coffee was very dull in the Friday session, which closed but little changed, from where it opened. The stochastic indicator is mildly oversold, and not issuing a signal. Our own indicator is going sideways, as is the RSI. The Thomas DeMark Expert indicator is issuing a very mild sell-signal. The chart tells us that we must stay above 118.00, or risk a slide to the congested 112 area. The 5-period exponential moving average is at 120.38. The top of the Bollinger band is at 129.15 and the lower edge is seen at 116.96. We are seeing increasing numbers of switches, as positions are moved, from the March expiry to the May expiry. The daily chart looks as though it might test the recent low of 118.00, before it heads upwards. To see an upward movement in March coffee, we need to close above 122.20. The 9 day moving average is at 120.40, the 18 day moving average is at 123.25 and the 40 day moving average is at 123.90. The weekly chart shows that all the indicators are pointing to lower levels. We must add that none are very decisive, and look rather, like gently sloping signals, without much gusto in them.
There was bullish news for Frozen Concentrated Orange Juice. This news was a continuation of more cold weather forecasts, this time also including, Florida. We continue to see frost problems for the groves in California and now, there is some concern about the crop in Florida. Friday, March Frozen Concentrated Orange Juice made a life of contract high, of 208.80; previous high of 207.60 was seen in the Wednesday session. The stochastic indicator is severely overbought, but continues to issue a buy-signal. Both our own indicator and the RSI are continuing to issue a buy-signal, at overbought levels. We have a 6-count on the upside. The 5-period exponential moving average is at 204.30. The top of the Bollinger band is at 206.22 and the lower edge is seen at 191.09. The 9 day moving average is at 199.44, the 18 day moving average is at 198.30 and the 40 day moving average is at 199.73. The weekly chart looks as though the market will continue to expand to the upside. All the weekly indicators are issuing a continued buy-signal. The monthly chart shows signs of exhaustion. So far, this indicator has had no value as we continue to plow higher.
March cotton, to stay above 54.30 or, suffer the test of the recent low of 52.85. All of the indicators that we follow are flat-lining, at neutral levels. This uniformity of a non-signal at neutral levels, is unusual, and tells us that the market is confused. The downtrend line for the Monday session is at 54.65. The 5-period exponential moving average is at 54.63. The top of the Bollinger band is at 56.77 and the lower edge is seen at 53.34. The 10 day moving average is at 54.48, the 20 day moving average is at 55.06 and the 50 day moving average is at 53.92. The weekly chart of cotton highlights the importance of 52.85.
The weekly indicators are as confused as are the daily indicators; only the stochastic indicator is issuing a signal, and that is, a sell-signal.
The chart of crude oil shows that it is trying to form a bottom. We have a 9-count on the bottom and are poised for a rally. The stochastic indicator is issuing a buy-signal, from oversold levels. It is important to note that the chart of the indicator shows that its lows have been higher than the previous lows, and that it seems to be on an uptrend. The
RSI is issuing a buy-signal, and our own indicator is issuing a buy-signal. Only the Thomas DeMark Expert indicator is not issuing a buy-signal, and is going nowhere, at neutral levels. The 5-period exponential moving average is at 52.91. The top of the Bollinger band is at 65.23 and the lower edge is seen at 49.09. The weekly chart isn’t as friendly as is the daily chart, but all the indicators followed herein, are issuing a buy-signal. The monthly chart does not look good. The only good news derived from it is, that the indicators are uniformly oversold.
Natural Gas left a huge green candle on the chart, as a result of the Friday trading session. The stochastic indicator is issuing a buy-signal; all the indicators we follow in this report are issuing a buy-signal. The 5-period exponential moving average is at 6.562. The top of the Bollinger band is at 6.9550 and the lower edge is seen at 5.943. The market is entering an area of congestion from 7.00 to 7.29, where it will have supply. The chart shows that natural gas has been making a bottom for a very long time. We have a mechanical buy-signal, issued on the weekly chart of natural gas. Also, all of the indicators that we follow herein, are issuing a buy-signal. On the monthly chart, the only indicator that is not issuing a buy-signal is the Thomas DeMark Expert indicator, which continues to issue a sell-signal.
Gold-bugs enjoyed the Friday rally. We are seeing an expanding upside, and with higher lows. That is the definition of an uptrend. We are above the 5-period exponential moving average. All of the indicators that we follow herein, are issuing a continued buy-signal. Unfortunately, they are all approaching overbought levels. The 5-period exponential moving average is at 635.70. The top of the Bollinger band is at 649.90 and the lower edge is seen at 612.70. The weekly chart looks good, also. The indicators are not overbought and are issuing a buy-signal, from neutral levels. The chart looks as though it is trying to move to the upside. We need to clear 653.50 on the upside, to open the door to the upside of 661 and 675 and higher. We continue to like gold.
By Jeanette Schwarz Young, CFP, CMT
Box 1952 c/o New York Board of Trade
One North End Avenue
New York, New York 1028