Option Queen Letter

All is well with the world, reference its reflection by many of the global stock markets. Here in the USA, we enjoyed a continuing “buy the dips” rally, as inflation retreated and bonds gave back some of their recently acquired yields. The side effect was the aggressive retreat in the US Dollar index, effectively telling us that any thought of increasing interest rates is again out the window. Speaking of interest rates, if you were to draw a chart of the S&P 500 and overlay a chart of the 30 year treasury, you would see that stocks are again eying bonds and are indeed, moving in opposing directions. This linkage began in March of this year.


Should you have failed to notice lately, all is not well with the world. The Bankruptcy rate of home-owners in the USA is rising. You can buy a nice home in Detroit for less than the cost of the purchase of a new car. No, that is not a slum; we are speaking about a rather nice neighborhood. Okay, so Detroit is a bit of an outlier; things aren’t quite that bad when you look at other areas. What a bargain, just buy a nice home in Detroit and hold it for several years. There is no hope of renting the property out; why rent if you can purchase a home that cheaply? Here is the plan, rent your current home out and buy the Detroit mansion and then tele-commute to work from Detroit. Well, at least we have come up with a plan to cut costs. Today, if you look at the cost of filling the tank plus filling the belly while paying your real-estate taxes, there isn’t much room for much else.
With mergers and acquisitions, we see companies become more efficient. They are buying assets, rather than building them; many times this leads to reductions in numbers of employees, as branches and locations are merged. For the employees, it is a scary time because not only are they afraid of loosing their jobs; they’re afraid of the newly merged entities employment benefits packages. The new company emerges as a more efficient facility, harking a product which can easily be broken up into several IPO’s, designed to return to the acquirer, more cash than was expended in acquiring the target. This clever way to increase returns has long been employed by many, throughout history. Today, with increasing mergers and acquisitions, it is very evident, leading to the fact that fewer companies obtain ,to invest in. The scarcity factor helps to cushion the markets; also, we have noticed that fewer companies are opting to list, here in the USA; rather, they’re being listed in other countries and markets, seeking to avoid onerous regulations, here in the USA. Actually, we do not feel that protecting the investor is an onerous regulation. We do feel that the “Patriot Act,” which encourages investment personnel to flag accounts for review, has opened the door for the investment industry to vent its vengeance on some investors. We would rather have that problem, than the previous problems, prior to the advent of the Patriot Act.
The US Dollar index suffered a significant retreat in the Friday session, removing two day’s worth of gains, in one “swell flop.” The good news is that the US Dollar index did not close on the lows of the session. The bad news is that we are still in an overbought area, as measured by the stochastic indicator. All the indicators that we follow in this report are issuing a sell-signal. The US Dollar index has not violated the uptrend line, which is at 82.48, for the Monday session. The 5-period exponential moving average is at 82.627. The top of the Bollinger band is at 82.835 and the lower edge is seen at 81.802. The weekly chart is overbought, as measured by all the indicators that we follow in this report; however, not one of these indicators is issuing a sell-signal. On a weekly basis, we have not broken the downtrend line. The monthly chart shows that we remain contained below the downtrend line. The indicators are flattish on the monthly chart. There is nothing remarkable about this chart. The market looks as though it could easily retreat to 82.35.
The Euro enjoyed a robust rally in the Friday session, finishing the session in the open gap left, on June 8^th . Before you get all excited about the gap, remember, the chart of the Euro is full of gaps, many of which never do get filled. This week, we will hear from the European Central Bank, with their interest rate decision; no change is expected. The indicators are uniformly issuing a buy-signal, from oversold levels. The 5-period exponential moving average is at 1.33540. The top of the Bollinger band is at 1.35695 and the lower edge is seen at 1.32988. The weekly chart is, for the most part, continuing in oversold condition. The market closed on the 20 period moving average and below the 5-period exponential moving average. The downdraft has been slow and steady and we need to see a close above 1.3504, the downtrend line on the weekly chart, to convince us that this down-move is over. We believe that after reviewing the weekly and daily charts, we can expect to see further progress to the upside, in the Euro.
The S&P 500 futures contract has a scary 14-count, as a result of the Friday session. We must admit that we have had 13 counts, that don’t work on this index, in the past, and that this could well be the case, here. What we also note is, that after a high count, the market seems to have trouble making any upside progress. Yes, we know we should go down, but you tell the market that; we just report on what it is doing. The indicators are all overbought, but only the stochastic indicator is issuing a sell-signal. The other indicators are pointing to higher numbers. The 5-period exponential moving average is at 1534.29. The top of the Bollinger band is at 1548.91 and the lower edge is seen at 1503.46. The weekly chart continues to show signs of exhaustion. The indicators on the weekly chart remain overbought and seem to be stuck there, at overbought. Most of the indicators have been continuously overbought since April, with no signs of a reversal. What is apparent from the weekly chart is that we seem to be moving like a car stuck in mud, making very little upside progress. The monthly chart illustrates the same overbought condition. The only difference between the monthly and the weekly chart is that the monthly chart is giving a sell-signal, but that is in only one of the four indicators that we follow.
The NASDAQ 100 rallied in the Friday session, completing another up-leg. The indicators are all at overbought levels, but none is issuing a sell-signal. The stochastic indicator looks as though it could issue a sell-signal, as early as the Monday session. The 5-period exponential moving average is at 1947.06. The top of the Bollinger band is at 1962.94 and the lower edge is seen at 1881.00. The weekly chart brings us a 20 count! All the indicators are overbought! Even the monthly charts are overbought, but the monthly charts show that we have now just gotten a sell-signal, at least in the stochastic indicator. We note also that the monthly chart shows that we have broken out of our range, to the upside, and we see signs of exhaustion. We can say, after reviewing all the charts, that the market is badly overbought and that this market will retreat.
The Russell 2000 made a marginal new high in the options expiration, Friday session. All the indicators that we follow are uniformly overbought; not one issuing a sell-signal. The 5-period exponential moving average is at 845.65. The top of the Bollinger band is at 868.92; the lower edge is seen at 822.28. The weekly indicators are as overbought as are the daily indicators; also not issuing a sell-signal. We have a scary 14 count, but that doesn’t matter; the market keeps on chugging to the upside. We seem to be having a little trouble making any significant upside progress. The monthly chart is confirming the findings of the other time-frames; all are overbought, badly overbought.
The Continuous Commodity Index made a life-of-contract high, in the Friday session. Just don’t tell the government that commodities are making a new high; it might upset that bogus core inflation gauge. The rally created a 12 count on this index of 17 equally-weighted commodities. We are overbought, as measured by all the indicators followed in this report. The indicators are telling us that higher prices will be seen. This certainly is not good news for inflation watchers; and even worse news for the debt market. The 5-period exponential moving average is at 412.13. The top of the Bollinger band is at 416.02 and the lower edge is seen at 399.38. The indicators are uniformly overbought; all are pointing to higher levels. The weekly chart is as overbought as is the daily chart, indicating that this market is breaking out to the upside, after a decent contraction of price. We do have a 13 count on the monthly chart, with a continuation of the long-term uptrend, seen in this index. The indicators are overbought on the monthly chart, but are pointing to higher levels.
July cocoa printed what could be called: a gravestone-doji-candle, in the Friday session. The indicators are getting overbought and both the stochastic indicator and our own indicator are curling over, but not issuing a sell-signal. The 5-period exponential moving average is at 18.74. The top of the Bollinger band is at 19.74 and the lower edge is seen at 18.05. The weekly chart is showing us that we could go higher. The indicators are issuing a buy-signal. The September contract is showing the same curling over as was seen in the July contract. The 5-period exponential moving average for the September contract is at 19.01. The top of the Bollinger band is at 19.95 and the lower edge is seen at 18.35. In general we are ‘longer-term-bullish’, with a view towards a short-term correction.
September coffee is forming a pennant. The indicators are mixed, with a buy-signal from the Thomas DeMark Expert indicator, a neutral from the RSI, nothing from the stochastic indicator, and a possible buy, from our own indicator. The 5-period exponential mvoign average is at 117.44. The top of the Bollinger band is at 120.74; the lower edge is seen at 112.64. The downtrend line for the Monday session is at 117.93. The uptrend line is seen at 116.71. The weekly chart shows that coffee did break above the downtrend line; it is following the uptrend line. This past week, we saw a doji candle, which indicates that we could see a change of direction, from up to down. The indicators are, for the most part, overbought and both the stochastic indicator and our own indicator, are issuing a sell-signal. Whichever way coffee breaks out of the pennant, follow that direction, for a reasonable move.
October sugar enjoyed a decent rally in the Friday session. The low of the Thursday session could be a short-term low, for October sugar. That low was 8.70. The indicators are all, uniformly, issuing a buy-signal. The 5-period exponential moving average is at 8.92. The top of the Bollinger band is at 9.49 and the lower edge is seen at 8.63. The weekly chart tells a different tale: One that says sugar is not yet out of the woods. The indicators on the weekly chart are mixed, with the RSI and Thomas DeMark Expert indicator, pointing lower and the stochastic indicator and our own indicator, pointing to higher prices. The downtrend line on the weekly chart is at 9.22, for next Friday. To turn this chart around, we will, at the very least, need to close above that level. The monthly chart continues to look awful.
September Frozen Concentrated Orange Juice has enjoyed a two-day rally; that’s not enough of a rally to remove the downtrend line. The Market is oversold, as measured by all the indicators that we follow, but it has been in that condition, for quite a while. It seems that, should this market rally, we will see some very stiff resistance at 148.27. The 5-period exponential moving average is at 141.47. The top of the Bollinger band is at 167.99 and the lower edge is seen at 136.57. The weekly chart is of no help, for the bulls. This time-frame looks as though the market can and will, go lower. We have spilled over, and returned to levels not seen since May of 2006. Yes, we remember the huge rally seen in FCOJ, but the downdraft has been a little excessive.
December cotton has become the upside darling of the New York Board of Trade. From a total and complete, dog of a market, this product has emerged into a beautiful butterfly! The indicators are all overbought. Both the stochastic indicator and our own indicator are rolling over to the downside, but have not issued a sell-signal. The 5-period exponential moving average is at 58.47. The top of the Bollinger band is at 59.30 and the lower edge is seen at 53.90. It is amazing what a month-long rally can do to change the feeling about a product. The weekly chart is showing signs of exhaustion, as we enter into the congestion area, near the high of 59.80. The indicators are all overbought and are pointing higher. The monthly chart tells us that we are not completely out of the woods, at this time, and that we need to make more progress to the upside to declare that the bear is in hibernation.
The US Dollar index suffered a mighty retreat in the Friday session removing two day’s worth of gains in one swift drop. The good news is that the US Dollar index did not close on the lows of the session. The bad news is that we are still in an overbought area as measured by the stochastic indicator. All the indicators that we follow in this report are issuing a sell-signal. The US Dollar index has not violated the uptrend line which is at 82.48, for the Monday session. The 5-period exponential moving average is at 82.627. The top of the Bollinger band is at 82.835 and the lower edge is seen at 81.802. The weekly chart is overbought as measured by all the indicators that we follow in this report but not one of these indicators is issuing a sell-signal. On a weekly basis, we have not broken the downtrend line. The monthly chart shows that we remain contained below the downtrend line. The indicators are flattish on the monthly chart. There is nothing remarkable about this chart. The market looks as though it could easily retreat to 82.35.
The Euro enjoyed a robust rally in the Friday session finishing the session in the open gap left on June 8th. Before you get all excited about the gap, remember, the chart of the Euro is full of gaps many of which never get filled. This week we will hear from the European Central Bank with their interest rate decision, no change is expected. The indicators are uniformly issuing a buy-signal from oversold levels. The 5-period exponential moving average is at 1.33540. The top of the Bollinger band is at 1.35695 and the lower edge is seen at 1.32988. The weekly chart is, for the most part, still in oversold condition. The market closed on the 20 period moving average and below the 5-period exponential moving average. The downdraft has been slow and steady and we need to see a close above 1.3504, which is the downtrend line on the weekly chart, to convince us that this down move is over. We believe that after reviewing the weekly and daily charts that we can expect to see further progress to the upside in the Euro.
The S&P 500 futures contract has a scary 14-count as a result of the Friday session. We must admit that we have had 13 counts that don’t work on this index in the past and this could well be the case here. What we also note that after a high count the market seems to have trouble making any upside progress. Yes, we know we should go down, but you tell market that, we just report on what it is doing. The indicators are all overbought but only the stochastic indicator is issuing a sell-signal. The other indicators are pointing to higher numbers. The 5-period exponential moving average is at 1534.29. The top of the Bollinger band is at 1548.91 and the lower edge is seen at 1503.46. The weekly chart continues to show signs of exhaustion. The indicators on the weekly chart remain overbought and seem to be stuck there at overbought. Most of the indicators have been continuously overbought since April with no signs of a reversal. What is apparent from the weekly chart is that we seem to be moving like a car stuck in mud, making very little upside progress. The monthly chart illustrates the same overbought condition. The only difference between the monthly and the weekly chart is that the monthly chart is giving a sell-signal but in only one of the four indicators that we follow.
The NASDAQ 100 rallied in the Friday session completing another up leg. The indicators are all at overbought levels but none is issuing a sell-signal. The stochastic indicator looks as though it could issue a sell-signal as early as the Monday session. The 5-period exponential moving average is at 1947.06. The top of the Bollinger band is at 1962.94 and the lower edge is seen at 1881.00. The weekly chart brings us a 20 count! All the indicators are overbought! Even the monthly charts are overbought, but the monthly chart show that we have now jut gotten a sell-signal at least in the stochastic indicator. We note also that the monthly chart shows that we have broken out of our range to the upside and we see signs of exhaustion. We can say after reviewing all the charts that the market is badly overbought and that this market will retreat.
The Russell 2000 made a marginal new high in the options expiration Friday session. All the indicators that we follow are uniformly overbought, not one issuing a sell-signal. The 5-period exponential moving average is at 845.65. The top of the Bollinger band is at 868.92 the lower edge is seen at 822.28. The weekly indicators are as overbought as the daily indicators are also not issuing a sell-signal. We have a scary 14 count but that doesn’t matter, the market keeps on chugging to the upside. We seem to be having a little trouble making a lot of upside progress. The monthly chart is confirming the findings of the other time-frames all are overbought, badly overbought.
The Continuous Commodity Index made a life of contract high in the Friday session. Just don’t tell the government that commodities are making a new high, it might upset the bogus core inflation gauge. The rally created a 12 count on this index of 17 equally weighted commodities. We are overbought as measured by all the indicators followed in this report. The indicators are telling us that higher prices will be seen. This certainly is not good news for inflation watchers and even worse news for the debt market. The 5-period exponential moving average is at 412.13. The top of the Bollinger band is at 416.02 and the lower edge is seen at 399.38. The indicators are uniformly overbought and are all pointing to higher levels. The weekly chart is as overbought as the daily chart and indicates that this market is breaking out tot the upside after a decent contraction of price. We do have a 13 count on the monthly chart with a continuation of the long term uptrend seen in this index. The indicators are overbought on the monthly chart but are pointing to higher levels.
July cocoa printed what could be called a gravestone doji candle in the Friday session. The indicators are getting overbought and both the stochastic indicator and our own indicator are curling over but not issuing a sell-signal. The 5-period exponential moving average is at 18.74. The top of the Bollinger band is at 19.74 and the lower edge is seen at 18.05. The weekly chart is showing us that we could go higher. The indicators are issuing a buy-signal. The September contract is showing the same curling over as seen in the July contract. The 5-period exponential moving average for the September contract is at 19.01. The top of the Bollinger band is at 19.95 and the lower edge is seen at 18.35. In general we are longer-term bullish with a view towards a short-term correction.
September coffee is forming a pennant. The indicators are mixed with a buy-signal from the Thomas DeMark Expert indicator, a neutral from the RSI, nothing from the stochastic indicator and a possible buy from our own indicator. The 5-period exponential moving average is at 117.44. The top of the Bollinger band is at 120.74 and the lower edge is seen at 112.64. The downtrend line for the Monday session is at 117.93. The uptrend line is seen at 116.71. The weekly chart shows that coffee did break above the downtrend line and is following the uptrend line. This past week we saw a doji candle which indicates that we could see a change of direction from up to down. The indicators are, for the most part overbought and both the stochastic indicator and our own indicator are issuing a sell-signal. Which ever way coffee breaks out of the pennant follow that direction for a reasonable move.
October sugar enjoyed a decent rally in the Friday session. The low of the Thursday session could be a short-term low for October sugar. That low was 8.70. The indicators are uniformly all issuing a buy-signal. The 5-period exponential moving average is at 8.92. The top of the Bollinger band is at 9.49 and the lower edge is seen at 8.63. The weekly chart tells a different tale, one that says sugar is not out of the woods yet. The indicators on the weekly chart are mixed with the RSI and Thomas DeMark Expert indicator pointing lower and the stochastic indicator and our own indicator pointing to higher prices. The downtrend line on the weekly chart is at 9.22 for next Friday. To turn this chart around, we will, at the very least, need to close above that level. The monthly chart continues to look awful.
September Frozen Concentrated Orange Juice has enjoyed a two-day rally but not enough of a rally to remove the downtrend line. The Market is oversold as measured by all the indicators that we follow but has been in that condition for quite a while. It seems that should this market rally, we will see some very stiff resistance at 148.27. The 5-period exponential moving average is at 141.47. The top of the Bollinger band is at 167.99 and the lower edge is seen at 136.57. The weekly chart is of no help for the bulls. This time frame looks as though the market can and will go lower. We have spilled over and returned to levels not seen since May of 2006. Yes, we remember the huge rally seen in FCOJ but the downdraft has been a little excessive.
December cotton has become the upside darling of the New York Board of Trade. From a total and complete dog of a market, this product has emerged into a beautiful butterfly! The indicators are all overbought. Both the stochastic indicator and our own indicator are rolling over to the downside but have not issued a sell-signal. The 5-period exponential moving average is at 58.47. The top of the Bollinger band is at 59.30 and the lower edge is seen at 53.90. It is amazing what a month long rally can do to change the feeling about a product. The weekly chart is showing signs of exhaustion as we enter into the congestion area near the high of 59.80. The indicators are all overbought and pointing higher. The monthly chart tells us that we are not completely out of the woods at this time and that we need to make more progress to the upside to declare the bear in hibernation.
Don’t look now, but crude oil looks higher, on both the point and figure chart and, on the market profile chart. Frankly, it doesn’t look bad on the candlestick chart, either. With all the talk of so much oil in the market, why is this product in rally mode? Obviously, there isn’t that much oil sloshing around. The stochastic indicator is overbought and curling over, but has not issued a sell-signal. The RSI isn’t near overbought, and is pointing, higher. The 5-period exponential moving average is at 66.61. The top of the Bollinger band is at 68.06 and, the lower edge is seen at 63.11. When you look at the daily candlestick chart, it certainly looks as though crude oil is in a trading range and, at the upper edge of that range. For the courageous, you can sell the product here, and use a buy stop, at 68.22 or 68.58.
Gold bugs unite!!! We have a buy-signal in August gold. Both the stochastic indicator and the RSI, are issuing a clear, buy-signal. The 5-period exponential moving average is at 655.640. The top of the Bollinger band is at 67.95 and the lower edge is seen at 64.87. The downtrend line is at 669.20. The weekly chart looks okay, but it tells a tale of a possible decline, leading to an aggressive rally. The weekly indicators are curling to the upside. The stochastic indicator will issue a buy-signal, and the RSI has already issued a buy-signal.
Jeanette Schwarz Young, CFP, CMT
Box 1952 c/o New York Board of Trade
One North End Avenue
New York, New York 10282
www.optnqueen.com/

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