The Options Queen, Jeanette Schwarz has just released her first book:
The Options Doctor: Option Strategies for Every Kind of Market (Wiley Trading)
For some time it has been clear that the doom forecasters have had their work cut out for them. Yet, who is actually looking for a huge slide in the market? “Ain’t happenin,” save your put money; just buy atomic bomb puts, for the safety of it and go your merry way. What is an “atomic bomb” put, you ask?
Why that is an out-of-the-money, really cheap put, of possible value, only if something drastic happened. Why then, this suggestion? Because there is far too much money chasing this market; which is why, it won’t go down. Stop trying to circle the date; we don’t know when it will show. Our technical indicators are simply telling us that we are overbought. These indicators work; they tell us when the market is going to retreat. We have noted that these retreats have been shallow and unless and until this market goes down enough and for long enough, we’ll not see that decline which the bears are thrusting for. How to recognize that decline when it begins? Clue! If the market declines enough to cause angst and margin calls, we will find ourselves tripping at the door-stop of the decline. Now, having said that, we must also suggest that we must have margin-calls; therefore, the decline must last a minimum of, say, a week and must be deep enough to have caused valuation problems in portfolios. That should start the ball rolling, ’til then, like every other mania: it is, until it isn’t!
We are now nearing the mania phase of the market. Most cabbies will tell you about the next hot stock. We just haven’t yet seen the mania bloom but, bloom, it will. We remember at the last bubble, many people decided to vacate their current jobs, in favor of day-trading their own accounts, to create income, It did create income, but for the commission-houses, not the investors, who belatedly discovered, that real investing takes time and research. Yes, monkeys perform well in bull-markets because all stocks rise to the surface. The question is: how well do you perform in a down market? That is the criterion that you, as an investor, must evaluate. Remember, it isn’t hard to do well in up-markets; everybody does; how did you do in down-markets? Do you outperform your peers or fail, miserably?
On to inflation: which nobody sees, but from which, we all “feel the pain.” We just got another friendly real-estate tax bill; our taxes on our home for 2002 were $3,147.00 a quarter. High! but hey, this is New Jersey! 2003, the quarterly bill was 3211.00, 2004, we saw a modes increase to $3255.00; moving right along, let us look at 2007: the quarterly tax bill was, rounded to the higher digit, $3900.00. Wow! No inflation? who are you kidding! Ten years ago, when we became the owners, the tax bill was $2500.00 per quarter. In a mere 10 years, we went from $10,000 per year to$15,600.00; we’d say that suggests inflation. Wouldn’t you? As an aside, no services were improved, the schools are the same, nothing changed, just the tax bill, which is, by any estimate, out of control. On to fruits and vegetables; up up and away; some drugs are up as much as 5% since January; how about the cost of health care? While we are on the subject, a flight to Texas cost $249.00 round-trip, last year; this year it cost $489.00; same exact season, same destination, same carrier, and yes, period of stay. We are not including energy, which; believe it or not, has declined in cost, all things considered.
We have been warning about those sub-prime mortgages, getting very ripe on the tree. They will rot soon, if not picked and eaten. So, what can we do? The good news is that so long as interest rates remain low, there is hope that some of the borrowers might be able to recast their loans into something a bit more affordable. The only fly in that ointment theory is that if the borrowers go into default, they’ll lose that option and the asset will be sold. What happens to the real-estate market if it becomes flooded with houses seized, because of these defaults? Do you believe that this excess inventory becoming available in the market, is good or bad? Remember the “Savings and Loan” home sales of the mid eighties? We could be approaching that sort of mess, so keep your cash handy for some real steals.
The US Dollar index retreated in the Friday session, removing all the gains it had achieved in the past two trading sessions. In the overnight session, leading to the Friday day session, the US Dollar rallied until 04:30 in the morning with a print of 84.32. By 10:00, in the New York session, the US Dollar index declined to 83.85, just three ticks above the important support level of 83.82. The bounce from that level, carried the market to 83.99, the close of the Friday session. The stochastic indicator is oversold and continues to issue a sell-signal. The RSI is just pointing lower. Our own indicator is issuing a sell-signal. The Thomas DeMark Expert indicator is overbought and continues to issue a buy-signal. We continue to worry about 83.82, on the downside. When reviewing the Market Profile chart, we note that a lot of work was done below that area, back in December. The area below 83.82 is not that stable and could lead to a flush down to 83.20, fairly quickly. Caution should be the watch-word. The 5-period exponential moving average is at 84.09. The top of the Bollinger band is at 85.16 and the lower edge is seen at 83.73. The weekly chart shows the market rolling over to the downside. The stochastic, on the weekly chart is issuing a sell-signal. The monthly chart shows the downward stair-stepping pattern seen for over a year. The monthly slow stochastic is issuing a buy-signal, as is the RSI. This is noteworthy because these signals are not common. Still, it is important to note that the daily and the weekly are indicating a sale on both the slow and fast stochastic indicators.
The Euro made a move to the upside in the Friday session, but was unable to hold the highs. It is important to note that the Euro has now closed the January gap. The Euro remains overbought, as measured by both the slow and the fast stochastic indicators. The RSI is also approaching overbought levels. Both the RSI and the stochastic indicators, continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a buy-signal,, from a neutral level, leaving room to grow on the upside. Our own indicator has just issued a buy-signal and is nowhere near overbought. The 5-period exponential moving average is at 1.31516. The top of the Bollinger band is at 1.32134 and the lower edge is seen at 1.29074. For this bullish feel to continue, we must stay above the lip of the gap at 1.31010. We haven’t seen the Euro above 1.3209 since December of 2006. The weekly chart continues to look like a rounding bottom, resolving to the upside. All the indicators we follow in this report are in agreement, issuing a buy-signal. When one looks at the monthly chart, it seems that there could be some problems. The indicators are pointing lower, issuing a sell-signal.
The S&P 500 March futures contract had a down-day in the Friday session. We see a slightly lower low in the session, along with a lower high. The market looks like it is rolling over to the downside. The stochastic indicators both slow and fast, are issuing a solid sell-signal. The RSI, our own indicator and the Thomas DeMark Expert indicator are issuing a continued sell-signal. The 5-period exponential moving average is at 1457.35. The top of the Bollinger band is at 1470.25 and the lower edge is seen at 1432.31. The weekly chart shows the probe to the upside, made during last week’s trading. We have both the slow and fast stochastic indicators, issuing a solid sell-signal, both at overbought levels. As an aside, this contract has been overbought since July on the fast and August on the slow, stochastic. Why should this signal be different from the other shallow sell-signals we have seen? There won’t be a difference until there is a real retreat seen in this market. Yes, we can remain at these levels, going back and forth for some time. The RSI is also issuing a familiar sell-signal, but again, it could be short-lived. Our own indicator and the Thomas DeMark Expert indicator are both issuing a solid sell-signal. We have a red 13 count on the weekly chart. This is not market friendly, but we will see.
The NASDAQ 100 enjoyed a rather robust rally this past week as it plowed higher, trying to repeat a run to the highs of the year at 1863, last seen on January 7th, 2007. The NASDAQ 100 rallied to 1857 in the Thursday session, but ran out of steam. The slow stochastic indicator is curling over to the downside and will issue a sell-signal within a day or so; the fast stochastic indicator is issuing a sell-signal. The RSI is issuing a sell-signal. Our own indicator and the Thomas DeMark Expert indicator are both issuing a solid sell-signal. We have a sign of exhaustion, seen in both the Thursday and Friday sessions. The 5-period exponential moving average is at 1841.86. The top of the
Bollinger band is at 1856.49 and the lower edge is seen at 1774.43. We are a bit extended on the upside, which can be seen on the chart. We are trading near and at the upper edge of the Bollinger band, a place we can not stay. The weekly chart is pointing higher, with a rounding bottom seen on the chart. Should we break below 1773, all upside bets would be negated. The monthly chart shows a picture of an overbought market, as measured by all the indicators followed in this report. Above 1855, we enter the world of single prints on the Market Profile chart. On the downside, under 1775.25, we enter the world of pain for the bulls.
The Russell 2000 enjoyed another high, this past week, when it printed 831.90. The stochastic indicator, the RSI and our own indicator are issuing a sell-signal, at overbought levels. The Thomas DeMark Expert indicator is not trending and going sideways,. At overbought levels. The 5-period exponential moving average is at 826.38. The top of the Bollinger band is at 833.13 and the lower edge is seen at 798.16. When we look at the Market Profile chart, we see that the week’s high was made on Thursday, early in the session. So long as the Russell 2000 can stay above 822.70, 813.40, and 811.50, there should be relatively little to worry about. The weekly chart’s indicators are overbought and curling over to the downside, but continue to issue a buy-signal. The weekly chart shows the upside probe seen in the Thursday session. The monthly chart is simply overbought and pointing higher.
The Continuous Commodity index made a life of contract high in the Friday session at the New York Board of Trade. This index given no media coverage is the old “CRB” index of 17 equally weighted commodities. Why aren’t we all concerned? Do we remain confused about the implications of higher commodity prices? Add the increase of raw materials to that of a tighter labor market and what do you get? The stochastic indicator is issuing a sell-signal. Our own indicator, and the Thomas DeMark Expert indicator are both issuing a sell-signal. Only the RSI continues to point somewhat higher at overbought levels. The 5-period exponential moving average is at 407.72. The top of the Bollinger band is at 410.65 and the lower edge is seen at 385.13. We see signs of exhaustion and the market is ripe for a pull-back. The weekly chart is pointing higher with signs of exhaustion. The indicators are uniformly issuing a continued buy-signal at overbought levels. The monthly chart reflects the same, overbought and pointing higher.
May cocoa is presenting us with an interesting chart. If we draw an uptrend line we will see that May cocoa is clinging to that line. The uptrend line for the Monday session is 17.70. The other interesting thing about this chart are the indicators which are making lower highs. The stochastic indicator is overbought and about to issue a sell-signal. The RSI is going sideways at near overbought levels. The Thomas DeMark Expert indicator is going sideways at overbought levels. Our own indicator is not issuing anything of value. The 5-period exponential; moving average is at 17.70, the uptrend line. The top of the Bollinger band is at 18.30 and the lower edge is seen at 16.08. The weekly chart’s indicators are issuing a sell-signal at overbought levels. The monthly chart reflects the aggressive nature of this past month’s rally in cocoa.
May coffee enjoyed a turn-around Thursday with a robust rally taking out of its previous depression. This rally was not continued in the Friday session but then again, the Friday session did not do a lot of damage either. The stochastic indicator is rolling over but has not issued a sell-signal. Our own indicator is doing the same. The Thomas DeMark Expert indicator continues to issue a buy-signal at overbought levels and the RSI is issuing a sell-signal. We could go further to the upside but will see resistance at 122.20 and 125.25. The 5-period exponential moving average is at 118.26. The top of the Bollinger band is at 122.39 and the lower edge is seen at 115.01. Those levels are good support and resistance numbers. The weekly chart has a red-9 on it. The stochastic indicator and our own indicator have both issued a buy-signal. The RSI is issuing a buy-signal and the Thomas DeMark Expert indicator is going sideways. The monthly chart isn’t of much value at the moment.
May Frozen Concentrated Orange Juice reached to the 200.00 value before retreating in the Friday session. We have signs of exhaustion and of a sell-set up done. The stochastic indicator and our own indicator are both issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. Only the RSI is going sideways at overbought levels. The 5-period exponential moving average is at 194.87. The top of the Bollinger band is at 198.76 and the lower edge is at 179.85. We also have a dangerous 9 count on the top. The weekly chart is supportive of the bullish view. All the indicators except the Thomas DeMark Expert, which is going sideways, are issuing a buy-signal. The market looks as though it could reach up and rally to the old highs. The monthly chart has signs of exhaustion. We see support at 196.30 and 193.00.
May cotton has a rounding bottom and looks as though it has further to go on the upside. All the indicators that we follow in this report are issuing a buy-signal, only the Thomas DeMark Expert indicator is overbought. We see some resistance at 54.30. The 5-period exponential moving average is at 53.07. The top of the Bollinger band is at 55.80 the lower edge is seen at 51.43. The weekly chart looks as though it is going to move to the upside. The indicators are uniformly issuing a buy-signal. The monthly chart shows that we will have resistance at 55.52.
May sugar began the week with a probe to the upside taking the market to 11.07 before profiteers appeared. The stochastic indicator is not issuing anything at all. Our own indicator is issuing a sell-signal. The RSI and Thomas DeMark Expert indicator are not trending and not issuing anything, simply going sideways. The uptrend line for the Monday session is at 10.48. The 5-period exponential moving average is at 10.60. The top of the Bollinger band is at 10.99 and the lower edge is seen at 10.21. Should the market probe below 10.35, it would be negative leading to 10.26 and lower. We need to close above 11.07 or face dull trading while we back and fill. The weekly chart doesn’t look as good as the daily chart does. The stochastic indicator is issuing a sell-signal along with the RSI. Our own indicator is not trending and the Thomas DeMark Expert indicator is going higher. The monthly chart continues to look very negative.
Crude oil has been going sideways for the entire month of February. Yes, we did have one short trip to the upside but that was it for the month. The stochastic indicator is about to issue a sell-signal. Our own indicator is not trending at the moment but remains on a buy. The Thomas DeMark Expert indicator is going higher and the RSI is flat at neutral. The uptrend line for April crude oil is at 58.65. The 5-period exponential moving average is at 60.34. The top of the Bollinger band is at 61.89 and the lower edge is seen at 56.39. All the indicators on the weekly chart are issuing a continued buy-signal. We should see stiff resistance at 62.30, if we can get thru that level that well will surely travel to 66.94. The monthly chart looks as though the market is going to make a move to the upside. Time will tell.
April natural gas has been inching its way higher. The indicators all continue to issue a buy-signal. The foot note here is that the indicators seem to be loosing some momentum on the upside. We need to see a close above or, at the very least, a print above 7.840. The 5-period exponential moving average is at 7.710. The top of the Bollinger band is at 7.987 and the lower edge is seen at 7.166. The weekly chart confirms the buy-signal seen on the daily chart. On the weekly chart it would be important for this market to print above 8.011. The downtrend line on the weekly chart is at 7.813. The uptrend line is at 7.523. The monthly chart supports all of the other findings.
April gold expanded the downside and the upside in the Friday session leaving a green candle in its wake. The indicators are issuing a continued buy-signal from overbought levels. The 5-period exponential moving average is at 679.90. The top of the Bollinger band is at 687.60 and the lower edge is seen at 644.30. We need to stay above the session low of 678.20 or risk a return to the congestion area of 670. The uptrend line is at 665.20 a level we will probably return to. The weekly chart has a sign of exhaustion. All the indicators continue to issue a buy-signal at overbought levels. The weekly chart looks as though we could travel to 695.00 before the next correction. The monthly chart looks as though we are going to go higher!
By Jeanette Schwarz Young, CFP, CMT
Box 1952 c/o New York Board of Trade
One North End Avenue
New York, New York 1028