The Options Doctor

The Options Queen, Jeanette Schwarz has just released her first book:
The Options Doctor: Option Strategies for Every Kind of Market (Wiley Trading)
Happy New Year to all concerned?? Sinceriously, we are, even now, entering the year of the “PIG.” In many Asian cultures, the pig is the precursor of good luck and, it is thought that the “Year of the Pig” will bring prosperity to all. With all best wishes for your ensuing good luck, we remain, etc., etc. We have also been advised by some Korean friends, that it is preferable to have children in the “Year of the Pig.” If this spirit should move you from slothful contemplation to action of consequence, our best wishes for luck. We are reluctant to believe that such solicitation for good fortune will seriously affect the World’s population, but good luck in all your endeavours. We would ask, though: how did the pig become so lucky an animal? We’ve always felt that arriving as a slab of bacon on the table would not so terribly lucky. We must have missed something in that one. Ash Wednesday is on February 21st, a season which leads us directly into the Easter shopping season, which, this year, is early. Perhaps the Pig has struck a blow intended to impact the clothing sellers? Although it could be bad timing for those trying to sell dolled-up Easter clothing in the middle of a snow storm, Easter falls on April 8th this year. Hellooo!

Now that option expiration week has passed, we can get back to going nowhere, fast. We continue to hear stories of the markets, climbing a wall of worry. Maybe the talk is of a “wall of worry” but the behavior is rather that of, “take my money, please, so I don’t miss the rally!” We will not have that much- feared-decline until we see a steep drop for more than four consecutive days. Most declines have been met with buying from the “buy-the-dips” crowd, looking for a point to enter or to add to their positions in the market. Until these guys get scared, or the margin clerks begin to issue calls, we will continue, on our merry way, higher. We are in the cautious camp, advising that you use this period of euphoria, to sell your portfolio dogs and additionally, sell covered calls on your existing securities. It wouldn’t be a bad idea to buy some protective puts on those issues, timed to expire, at the same time that your covered calls expire. What can you expect from this sort of conservative behavior? Well, for one thing, increased yield on your investments. At this point, we always hear that we can’t sell THAT stock, our late husband bought it for us�..so what, it is only a piece of paper, not a person! The other thing we always hear is: what if it goes higher? So you didn’t catch the top, it gives you a wonderful opportunity to look for another investment in which to grow your money.
The hedge-fund fun-times, are in full swing, as money which is looking for a better return, pours into these vehicles. Many of these funds are flooded with so much cash, that they are, as a group, partially responsible for the lift and hold of the market and are, indirectly responsible for the implosion of volatility. We haven’t seen a decent correction in a very long time and it is not likely that we will, that is, so long as these cash-rich funds keep plowing willing dollars into the markets. The question every investor should ask is: What will I do if these guys all want to exit the market at the same time? What will happen to my money? Good question. We haven’t seen this sort of behavior since 1987. We have to remind you that in normal times, prior to the recent run of no-volatility market, even in the most aggressive bubble stock market, we did have limit-down days. We haven’t seen a limit-down in the S&P 500 in years!!!!! Ah for the days of yore, when things were exciting!
The US Dollar index rallied early in the Friday session, falling short of our resistance targets of 84.25-84.28. The high of the Friday session was seen by 09:10, after which, the market retreated, leaving a doji-like candle on the chart. The stochastic indicator is issuing a buy-signal. Our own indicator and the RSI are in agreement with that finding. The Thomas DeMark Expert indicator is issuing a continued sell-signal, but is at oversold levels. We continue to see resistance levels in the US Dollar index at 84.28 and additionally, at 84.48. The 5-period exponential moving average is at 84.19, a level we have closed below. The top of the Bollinger band is at 85.28 and the lower edge is seen at 83.97. Frankly, the chart looks as though, after a little more work to the upside, it could roll over and retreat to 83.68 and 83.05. If you are a US- Dollar index bull, don’t look at the weekly chart! All the indicators that we follow in these reports are issuing a sell-signal. The chart looks as thought the market is rolling over to the downside. The downtrend line on the weekly chart is at 84.91. The downtrend line on the monthly chart is at 84.30. The indicators on the monthly chart have three of the four issuing a sell-signal; only the Thomas DeMark Expert indicator is issuing buy-signal. The monthly chart looks as though we are making a slow retreat, lower.
The Euro is rolling over to the downside. The Friday session added yet another exhaustion sign on the chart. The stochastic indicator is overbought and is issuing a sell-signal. Our own indicator has just issued a sell-signal, and the RSI is in agreement with that finding. The Thomas DeMark Expert indicator is going sideways, issuing nothing of value. The ascent of the Euro has been too steep; it does need to either go sideways, backing and filling, or to retreat to purge itself of some of the excessive bullishness. The 5-period exponential moving average is at 1.31162. The top of the Bollinger band is at 1.31551 and the lower edge is seen at 1.29035. The uptrend line is a 1.29957 for the Tuesday session. The weekly chart paints a different picture: On this chart, we have all the indicators followed herein, pointing higher. The chart shows a rounded bottom with a resolution to the upside. The downtrend line on the weekly chart is at 1.31960. The uptrend line on the weekly chart is at 1.29985.
The S&P 500 made a fresh yearly high in the Thursday session, when it printed 1461.70. We have what looks like a hangman’s candle, as a result of the Friday session. The candle has a long tail, and almost no wick, with a small, real body. As you know, a real body is formed by using the opening and closing price for the session in question. The opening price, on Friday was 1459.40 and the closing price was 1458.90. If it were a true doji, both the opening and closing prices would be the same. We call this a doji-like candle. The stochastic indicator is issuing a sell-signal, from overbought levels; our own indicator is in agreement with that finding. The RSI and the Thomas DeMark expert indicator are both going sideways, near overbought levels. The 5-period exponential moving average is at 1455.41. The top of the Bollinger band is at 1467.04 and the lower edge is seen at 1422.98. The uptrend line on the daily chart is at 1443.21 for the Tuesday session. When looking at the chart, you are impressed with the steepness of the rally. For the past two sessions, it seems as though we haven’t made any progress to the upside; this is giving the market a feeling of being heavy. We could stay at these levels until we gain enough strength to venture forward, but we believe that the next move will be down, rather than sideways. We are simply looking for the action to revert to the uptrend line, below. We have a 13 count on the weekly chart and we would not be surprised to see a decent sized retreat, within a week or two. The indicators are uniformly overbought and continue to issue a buy-signal. The monthly chart is giving us a 9 count and signs of exhaustion. The indicators on the monthly chart are uniformly issuing a sell-signal, from overbought levels.
The NASDAQ 100 has underperformed the S&P 500 on the upside; now, will it underperform on the downside? This past week, the NASDAQ 100 tried to play catch-up with the S&P 500 and did an awesome job, moving to the upside. It wasn’t enough to print a new high, as the S&P 500 managed to do. The stochastic indicator, our own indicator and the RSI are all uniformly issuing a sell-signal, from overbought levels. The Thomas DeMark Expert indicator continues to issue a buy-signal. The 5-period exponential moving average is at 1818.85. The top of the Bollinger band is at 1833.73 and the lower edge is seen at 1772.54. The chart looks as though the NASDAQ 100 is rolling over to the downside. The weekly chart is painting a different picture. The indicators on the weekly chart have for all but the Thomas DeMark Expert indicator, issued a buy-signal. We see the Bollinger bands contracting, in the weekly chart. We seem to be going sideways; making but little progress to the upside. The indicators on the weekly chart are overbought and are going sideways. That isn’t much help, but it shows that this market has had a sideways behavior, for quite some time.
Both the mid-cap and the Russell 2000 small capitalization indices rallied in the Friday session. The Russell 2000 is below the horizontal line at 821.30, but above the uptrend line at 815.90, for this past Friday’s session. The uptrend line for the Tuesday session is at 820.32. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. Both the stochastic indicator and our own indicator are overbought, at severely overbought levels. The RSI is approaching overbought, but has a tiny bit more room on the upside. The Thomas DeMark Expert indicator is not issuing any signal at all and is resting at neutral levels. The 5-period exponential moving average is at 816.43. The top of the Bollinger band is at 829.52 and the lower edge is seen at 783.00. We continue to believe that should 804.50 fall, we will have a steep correction in the Russell 2000. However, should the Russell 2000 make another high, that projection will be nullified. The market looks and feels heavy, but it could blow to the upside for one more rally, before it all comes crashing down to reality. The weekly chart supports that finding. All the indicators that we follow herein are grossly overbought, but none is issuing a sell-signal. It would appear that there could be a bit more on the upside, before we see a healthy retreat. The monthly chart is in agreement with that finding, grossly overbought, but continuing higher, for the moment. The monthly chart has a scary 15 count on it. Please be careful!
The Continuous Commodity Index ventured higher in the Friday session. We are now seeing the first signs of exhaustion in this index. The stochastic indicator and our own indicator are both grossly overbought, but have not issued a sell-signal. The Thomas DeMark Expert indicator is going sideways, at overbought levels and the RSI has just become overbought and continues to point to higher levels. The 5-period exponential moving average is at 399.04. The top of the Bollinger band is at 401.50 and the lower edge is seen at 386.27. Please note that this index traveled above the Bollinger band in the Friday session, closing above the upper edge. We remind you that this condition can not last for more than a few days, leading to a sideways or corrective reaction. The next resistance level on the upside is at 404.01. Above that level, expect to see some selling at 406.05 or so. The weekly chart is showing signs of exhaustion. We have seen this index up, for the past six weeks. All the indicators that we follow in this report are uniformly issuing a continued buy-signal, with the cautionary: they are getting overbought! The monthly chart paints a picture of an index that is overbought, but one that wants to go higher. The indicators are all pointing higher.
May cocoa probed the upside, printing 18.01, a level not seen in a very long time, in the Friday session and closed slightly positive, on the day. That number apparently caused some altitude problems, sickness causing cocoa to retreat from that level. The daily chart shows the stochastic indicator is at overbought levels and our own indicator is overbought, neither issuing any signal. The RSI is also overbought and going sideways. The Thomas DeMark Expert indicator is overbought and continues to issue a buy-signal. We would not be surprised to see a retreat to 17.61-17.63. The 5-period exponential moving average is at 17.67. The top of the Bollinger band is at 18.08 and the lower edge is seen at 15.76. The uptrend line for Tuesday is at 17.46. It would not be surprising to see a retreat to the uptrend line. The weekly chart illustrates the dramatic ascent seen in May cocoa. We have a life of contract high, at 18.12, seen on July of 2007.The indicators on the weekly chart are overbought and continue to issue a muted buy-signal. The monthly chart is equally as overbought, as are the weekly and the daily charts.
May sugar rallied in the part of the Friday session, but fell victim to profiteers by the end of the session. The market opened higher with a small follow-thru to the Thursday point of inflection rally, but failed to have much more than a blip to the upside. The rest of the session was spent on the downside, leaving us with a large red candle on the daily chart. We could see a further retreat to 10.69 to 10.70 where we believe some support will be found. The daily chart shows a very overbought market. The stochastic indicator could issue a sell-signal in the Tuesday session. It is curling over to the downside from overbought levels. Our own indicator is not as far along, curling over to the downside, and may take two sessions to issue that signal. The Thomas DeMark Expert indicator is overbought and issuing a sell-signal, and the RSI is in agreement with that finding. The 5-period exponential moving average is 10.64. The top of the Bollinger band is at 11.14 and the lower edge is seen at 10.21. When reviewing the weekly chart, it is clear that May sugar closed above the downtrend line. The indicators are uniformly issuing a buy-signal. We would expect to see the market find resistance at 11.84. The monthly chart has a doji candle on it, which means that this market is in a period of transition. The indicators on the monthly chart are pointing higher.
May coffee retreated in the Friday session, printing the pit low of 115.80, and the electronic low of 115.60. We were there for the close and witnessed strong buying at the 116.00 level, although these very large buy-orders were not enough to support the market very much. The downtrend line for the Tuesday session is at 117.14. We see that 118.20 will offer some resistance. The stochastic indicator is issuing a sell-signal, at oversold levels, as is our own indicator. The Thomas DeMark Expert indicator is issuing a buy-signal. The RSI is also pointing lower, but is at oversold levels. To spark a renewed rally, we need to close or, at the very least, print above 118.20. On the other side of the trade, for the bulls to have a chance, we need to see above 115.60. We are concerned that the electronic session saw a slightly lower low than was seen in the session on February 13, 2007. We will give the benefit of the doubt to the bulls and leave it at that. The 5-period exponential moving average is at 116.93. The top of the Bollinger band is at 122.31 and the lower edge is seen at 115.80. Obviously, we are near the oversold lower band on the chart. The weekly chart is showing us that all but the Thomas DeMark Expert indicator, are issuing a continued sell-signal. We have a liability to 114.10, which is where we find the longer-term uptrend line. Even the monthly chart looks as though, this market can go to the 114.00 level before some aggressive buyers appear.
May Frozen Concentrated Orange Juice slowly traded higher for the Friday session. The stochastic indicator continues to issue a buy-signal, at somewhat overbought levels; our own indicator is issuing a fresh sell-signal, and the DeMark Expert indicator is overbought and continues to issue a buy-signal. The uptrend line held in today’s session. For Tuesday, the uptrend line is at 190.78. We saw an inside day in the Friday session, preceded by two exhaustions days on Wednesday and Thursday. We would become somewhat concerned if May Frozen Concentrated Orange Juice closed or traded much below 187.50. Should that occur, expect to see a swift decline to 183.00 and then, 181.50. The 5-period exponential moving average is at 189.43. The top of the Bollinger band is at 201.52 and the lower edge is seen at 178.76. The downtrend line is at 194.81 and the uptrend line is at 190.18 on the weekly chart. The indicators on the weekly chart are uniformly issuing a buy-signal. On the monthly chart, if you do a simple Fibonacci retracement, you will find that we have not given much up, from the top of the chart. Remember, we do have a very large gap under this market. That gap is from 175.50 to 180.50.
May cotton recovered nicely from the low seen in the Thursday session, rallying to 52.75 before closing at 52.33. The stochastic indicator is issuing a very mild buy-signal, from oversold levels. Both the Thomas DeMark Expert indicator and our own indicator are in agreement with that finding. Only, it is not following the crowd and is simply going sideways, at near-oversold levels. So long as May cotton can stay above 51.45, we will give it to the bulls. The 5-period exponential moving average is at 52.47. The top of the Bollinger band is at 56.57 and the lower edge is seen at 51.64. Notice that the low of the Friday session was at 51.60, below the lower edge of the Bollinger band. The weekly chart illustrates how deep the retreat was this past week. The stochastic indicator, our own indicator and the RSI are all pointing lower and nearing oversold levels. The Thomas DeMark Expert indicator is issuing a buy-signal. The downdraft has been too steep to continue at this pace. So at the very worst, we will see some backing and filling as May cotton looks for its footing. The monthly chart will do nothing to raise your spirits. This chart shows the extent of the downdraft, this past month, giving us continued bad news. We shall see how this one plays out.
Crude oil is above the downtrend line, and above the uptrend line. The chart looks as though Crude oil would like to challenge the recent high of 60.80. The stochastic indicator is issuing a continued buy-signal. Both the RSI and our own indicator are issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal, at oversold levels. The 5-period exponential moving average is at 58.90. The top of the Bollinger band is at 61.47 and the lower edge is seen at 53.13. So long as crude oil can stay above 57.11, we believe it will make a run for the 60.80 level. Should it remove 57.11, we will return to the 55 dollar congestion area on the chart. The uptrend line on the weekly chart is at 58.47. The indicators are not much help, on the weekly chart. The monthly chart gives us a picture of consolidation, with the indicators uniformly issuing a buy-signal.
The chart of Natural Gas futures looks as though it has formed a rounded bottom and looks as though it will continue to rally further. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. The Thomas DeMark Expert indicator is oversold and going sideways. The 5-period exponential moving average is at 7.407. The top of the Bollinger band is at 7.977 and the lower edge is seen at 6.920. The weekly chart is giving us a somewhat different picture. The stochastic indicator and the RSI are both pointing lower; our own indicator looks to be curling over to the downside and the Thomas DeMark expert indicator is overbought and going sideways. Looking at the chart, it looks as though it is rolling over to the downside. The monthly chart looks as though we are consolidating in a very range-bound market. The indicators are confused, at best.
April gold is consolidating, at higher levels. The chart looks like we have hit a roof and can’t go further. The stochastic indicator is overbought and continues to go sideways. Our own indicator is going sideways; the RSI is pointing higher, at overbought levels. The Thomas DeMark Expert indicator is issuing a sell-signal, from overbought levels. The 5-period exponential moving average is at 670.30. The top of the Bollinger band is at 677/20 and the lower edge is seen at 641.00. We need to see a print above 676.60 to force the shorts to cover, and to force fresh money into the market. The uptrend line is at 666.66. The weekly chart paints a picture of an overbought market, with none of the indicators issuing a sell-signal. The market has remained glued to the uptrend line and is currently near the upper Bollinger band. The monthly chart looks fine. All the indicators on the monthly chart are pointing 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
www.OptnQueen.com