Did you have an enjoyable 07/04/07 holiday? We hope so because the market didn’t take one and we’re streaming with news. For examplestance: just as we finished one earning season, here’s another numbers season upon us. We start, as we always do, with Alcoa leading the parade, on Monday, with its earnings report. Monday is also the big day for the Chicago Board of Trade; it is the day when the vote on the CME’s deal to acquire the holding company, will determine the lucky prize winner of the CBOT. It could be CME and then, again, it could be ICE.
We think that the CME will emerge the winner on this one. And, as to ICE, we hear that they too, could be the possible victim of a merger. We’ll just have to wait to see how that one plays out.
The market rallied in the Friday session, anticipating the announcement of possible buy outs on Monday morning. This anticipation helped goose up the averages, close to their highs for the year. It seems that we are so close to the highs that those numbers will be exceeded, for no other reason than the fact that they are there. We haven’t really traveled outside of our old trading range, and we just might expand the upside of that range. Meanwhile, back at the economy, all seems to be doing well, on the surface at least. But dig down a little further and we see the beginnings of some trouble bubbling up, not yet ready to explode. That trouble is nested in the debt arena. So far, the banks are still lending to most anybody alive enough to fog up a wineglass. This, we fear, will soon change. We wonder how many people with ARMS, adjustable rate mortgages, will feel the urge to lock-in their interest rates. So long as the media continues to prattle about a possible FOMC rate decrease, there is no apparent urgency to lock-in their mortgage rates, but what if the media got it wrong? What if, heaven forefend, the rate is higher in six or nine months?
Over the past several “Option Queen” letters, we have been speaking about prospective inflation. The question, always of concern is: How can inflation pick up if our economy is slowing down? The answer is, simply, based on the fact that our economy may not slow down enough to slow inflation and, secondarily, it could be that other economies, globally, are continuing to expand. This expansion has caused brief shortages of some commodities, resulting in some subsequent tightness. This condition can not be adjusted by the FOMC or by any of our domestic agencies, but rather, needs to be addressed by the foreign governments that are facing this problem. We see that Great Britain raised interest rates to 5.75%, because of overexpansion and a bubble in the housing market. The European Central Bank has voiced its concerns about inflation. As you look around the globe, you will observe a variety of interest rates. These interest rates, in many cases, exceed the US rate and, in many cases, are below the US rate. In the recent past, we were sitting at the upper end of the interest rate curve rate, worldwide and recently, we have fallen back in the line.
It must also be noted that some countries like New Zealand, have had very high interest rates for a long while; when you look at emerging markets, they generally support higher interest rates than are seen in the European continent, Asia or here, in the USA. All this is meant to enlighten you to the fact that we in the USA, do not control the world and we must evaluate, beyond our shores. Iceland has an interest rate of 14.25%, Hungary 7.75% and then, of course, there is Switzerland, yodeling an interest rate of 2.5%. In the Asian- Pacific region, New Zealand, has an 8% rate and India, with a 7.75% rate win the high rate prizes, with Japan’s 0.5% rate, the global winners on the downside. South Africa sports a 9.5% rate and Egypt 8.75%. Now, if you check the Middle East, Turkey has a 17.5% interest rate and Brazil, in South America, with a 12% rate, are among the highest.
Before you run out the door to find a dealer who can get you a 17.5% interest rate in Turkey, remember why you are getting that reward for the currency RISK that you are taking. Remember, the recent articles about Iceland, regarding the difficulty that country was having in finding buyers of their debt. To get buyers interested, they had to raise their interest rates, high enough to entice people to take that risk. There is that word again: “Risk.” The bottom line is that there is no such thing as a “Free Lunch.” You get paid for risk, not for safety. Now, how can the FOMC control these rates? Obviously, they can’t; thus, while the ECB, the Bank of England and the FOMC might be vigilant against inflation, they can not control the global appetite for products and thus, inflation.
The US Dollar index has a scary low of 81.08 in the Thursday session, but was able to pull away and rally, from that level. Friday we saw a probe to the upside, with a failure to follow-through and close, at those levels. We did see a venture to test the Thursday’s low, but we didn’t get that test and rallied, before it could be tested. The stochastic indicator is oversold and going sideways. Our own indicator is also going sideways. The RSI is oversold and again, going sideways and the Thomas DeMark Expert indicator is bending slightly higher, at neutral levels. The 5-period exponential moving average is at 81.35. The top of the Bollinger band is at 83.15 and the lower edge is seen at 80.965. We continue to trade below the downtrend line of 81.580, for the Monday session. We continue to remain concerned about the 81.10-81.08 level and would become decidedly bearish, should we close below that area. The downtrend line on the weekly chart is at 82.560. The indicators that we follow herein, are uniformly issuing a sell-signal, on the weekly chart. When you look at the monthly chart, it is clear that we are below the downtrend line and that we are in a very dangerous area, on the downside. We could be in for some severe pain on the downside, should we violate these multiple bottoms in the 81.10-81.08 area. The only life-saver for this chart is that we are oversold, on all time-frames.
The Euro seems to have the April 27th high of 1.3740 in its sights. We are overbought, as measured by the stochastic indicator and the RSI. We continue to have a uniform buy-signal, as issued by all out indicators. The 5-period exponential moving average is at 1.36202. The top of the Bollinger band is at 1.36816 and the lower edge is seen at 1.32894. The weekly chart is a scary chart to look at. We have a possible evening-star formation, which, as you know, is a very reliable sell-signal. We will not know, until the end of the Monday session, if, in fact, it is an evening-star. As you know, an evening-star is not a single candle affair; rather it is dependent on a series of candles; so, we must wait to see. All the indicators that we follow are uniformly issuing a buy-signal; most approaching overbought levels, but, with more room to the upside. We are looking at a weekly chart, which is a longer-term view. If long, the Euro, use a floating sell-stop as an exit to a profitable position.
The S&P 500 enjoyed a Friday rally in anticipation of Merger Monday. We are close enough to the yearly high of 1554.20, to make a run for it. We remain above the uptrend line at 1538.67, for the Monday session. The indicators are uniformly positive, but mildly so, approaching overbought levels. The 5-period exponential moving average is at 1535.41. The top of the Bollinger band is at 1556.08 and the lower edge is seen at 1501.34. Here are some land-marks that you should be aware of: should we not remove the high, we need to be very aware of the low of June 27th, of 1492.20. The bottom line of the analysis is, that we must stay above that line, on a closing basis. This is your line in the sand. The only way to wash that line away, is to print a new, meaningful, high. Should we close below that level, we will have opened the door to significantly lower levels. The market feels heavy, as though it’s a lot of work to make upside progress. This feeling is emphasized by the weekly chart. You can literally see the resistance at the upper range. The indicators on the weekly chart, show the stochastic overbought and, pointing higher; our own indicator, pointing higher and the RSI, pointing higher, approaching overbought levels. The Thomas DeMark Expert indicator is going sideways, at neutral levels. We have continued signs of exhaustion in the weekly chart. When we review the monthly chart, we see that this market has remained above the 5-period exponential moving average, since March, when it briefly dipped, below that level. For this month, the 5-period exponential moving average is at 1504.27. The indicators on the monthly chart are going sideways, about to issue a sell-signal, at overbought levels. Again, these are monthly readings. All of these time-frames support the conclusion that this market is heavy and, in need of a rest, but that it probably will try to remove the recent high. We remain concerned, that should the market close below 1504.27 and 1492.20, we would have the risk of a retreat back to 1424, a congestion area. The bottom-line: proceed with caution.
And the winner in the Friday market was�..the NASDAQ 100, which tacked on another 11 points, enough to make a new high for the year! Yes, we do have signs of exhaustion in this index. The stochastic indicator is grossly overbought and is issuing an iffy, buy-signal. Our own indicator is not trending and going, sideways. The RSI is going sideways, at overbought levels and, the Thomas DeMark Expert indicator is issuing a solid, sell-signal. The 5-period exponential moving average is at 1990.93. The top of the Bollinger band is at 2005.61 and the lower edge is seen at 1913.08. We have remained above the 5-period exponential moving average since June 29th, and we are currently above the upper edge of the Bollinger band, a place where we will feel some downside pressure. The weekly chart shows a scary 22-count! The stochastic indicator, our own indicator and the RSI, are all grossly overbought and continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The monthly chart is also showing signs of exhaustion. The indicators are all overbought and all but the RSI are issuing a sell-signal.
The Russell 2000 mini contract met the previous high of 560.00 in the Friday session. Both the Russell 2000 regular contracts traded in Chicago and in New York, did not make and meet that high, and fell short of that mark, probably because they don’t trade as much as the mini contract does. The stochastic indicator is grossly overbought and pointing higher. The RSI has stopped trending and is going sideways, just shy of overbought levels. Our own indicator is about to issue a sell-signal and the Thomas DeMark Expert indicator has already issued a sell-signal. The 5-period exponential moving average is at 854.83. The top of the Bollinger band is at 864.38 and the lower edge is seen at 828.18. We seem to be at the upper edge of a range-bound market, with the top at 860.00 and the bottom of the range at 824.20 so, unless and until we break out of this range, we would expect to see a continuation of this pattern. The weekly chart illustrates this range and sideways pattern, clearly. The stochastic indicator and our own indicator are extremely overbought and continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal and the RSI isn’t really issuing anything of value. The indicators on the monthly chart are all uniformly overbought, and pointing higher. If we break out to the upside, our progress higher will be limited, by the overbought condition in which we find ourselves. If we retreat, well, we just might go to the other end of the sine-wave pattern and revisit, 824.20.
The Continuous Commodity Index cash seems to be on track to challenge the previous high of 418.59, seen on June 18, 2007. The stochastic indicator is getting overbought and continues to issue a buy-signal. The RSI is pointing higher and our own indicator is issuing a solid buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal, from overbought levels. The 5-period exponential moving average is at 413.36. The top of the Bollinger band is at 418.79 and the lower edge is seen at, 403.32. The weekly chart shows that we are in an area of extreme resistance. Both the stochastic indicator and our own indicator are extremely overbought and continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal. The RSI is not issuing anything of value. We seem to be range bound, between 401.18 and 419. The monthly chart has a red 13 count. The indicators are uniformly overbought and none but the stochastic indicator, which is issuing a buy-signal, is issuing any signal. We seem to be in an area of congestion with little progress to the upside.
September cocoa is going to the moon! Every retreat in cocoa has been met with buying. The stochastic indicator, our own indicator and the RSI are all grossly overbought. Both our own indicator and the stochastic indicators are issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a solid, sell-signal. The 5-period exponential moving average is at 20.86. The top of the Bollinger band is at 21.34 and the lower edge is seen at 18.10. Our sell-set up is at 21.01 for those with the courage to sell this product. The weekly chart has signs of exhaustion. The indicators on the weekly chart are uniformly overbought and continue to issue a continued, buy-signal. For the past four weeks this product has been on an upside tear. We would expect to see a retreat to 20.14 in the near-term future. The monthly charts are overbought, but the Thomas DeMark Expert indicator is issuing a sell-signal. The RSI is pointing higher, on the monthly chart.
September coffee retreated for most of this past week. As such, we have a seven-count on the bottom and have entered into a heavily congested area of this market. The stochastic indicator is issuing a buy-signal, from oversold levels. The Thomas DeMark expert indicator is oversold, but continues to issue a sell-signal. The RSI is pointing lower, at oversold levels and our own indicator is issuing a sell-signal and is not at oversold levels. We saw September coffee break below 110.25 in the Friday session. As you know, this number was a very important number, for the product to stay above. We did see a downside probe to 108.70 and an aggressive bounce from that level, back to our important 110.25 number. We have opened the door to some lower levels, say 107.40, 107.05 and, of course, 106.20. We would expect to see support at those levels. The 5-period exponential moving average is at 111.03. The top of the Bollinger band is at 115.49 and the lower edge is seen at 105.20. The weekly chart shows that we probably will continue lower. The indicators are uniformly issuing, a sell-signal; none are at oversold levels. The downdraft has been steep and might correct for some of that steepness, but that should not be taken as a bullish move. Only a close, above 121.15, would set us up for a run to the 135.00. The downtrend line for this week is at 116 and change; and we need to see a close, above that level for a possible reversal signal.
Sugar is enjoying a sweet return to the upper edge of its current range. All the indicators that we follow herein, are issuing a buy-signal on sugar. We have only one caution; that is, that we must not close below 9.17. Should we retreat below that level, we will see some sell-stops and pressure to the downside. The 5-period exponential moving average is at 9.53. The top of the Bollinger band is at 9.97 and the lower edge is seen at 8.72. When we review the weekly chart, the impressive rebound seen in the daily chart, is muted by the effects of time, on the chart. We seem to be consolidating on the weekly chart. The indicators are approaching overbought and continue to issue a buy-signal. The monthly chart looks as though we have made a bottom and we are curling upwards but it also warns that we might not be completely out of the woods yet.
So why is Frozen Concentrated Orange Juice retreating into hurricane season? Well, maybe because hurricanes did not affect the crops last year or maybe, because fear mongering isn’t working. The market retreated midweek, ending the Friday session to the upside. We remain below the medium term downtrend line, at 134.34 and below 130.65 which is a very short-term downtrend line for the Monday session. We really need to close above 136.50, to turn this chart more bullish. If we could close above 136.50, we will return to the congestion area of 149 to 154. The indicators are all in overbought territory and are really not giving us a signal to trade on. The 5-period exponential moving average is at 130.36. The top of the Bollinger band is at 148.23 and the lower edge is seen at 120.13. When we look at the weekly time-frame, we see how steep this retreat has been. We also see that the indicators are, for the most part, in oversold condition. Our own indicator and the Thomas DeMark Expert indicator are issuing a buy-signal, but both the RSI and the stochastic indicator are issuing a sell-signal; both of the latter indicators are oversold.
Wow! Has cotton had a ride, on a huge rally-wave. The stochastic indicator is grossly overbought and continues to issue a buy-signal. Our own indicator is not issuing anything of value. The Thomas DeMark Expert indicator is issuing a solid, sell-signal and the RSI is drifting higher at overbought levels. The 5-period exponential moving average is at 63.64. The top of the Bollinger band is at 65.23 and the lower edge is seen at 56.29. The uptrend line for the Monday session is at 63.29. We do have an 8-count at the top. The weekly chart show just how powerful this updraft in cotton has been. The stochastic indicator and the RSI are exceedingly overbought and continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal and our own indicators are in agreement with that finding. We certainly wouldn’t fight this market, but would use caution. There is no reason to abandon, you longs, but every reason to place floating sell-stops, to protect your profits.
Wow, light sweet crude oil has been on an upside tear, for the past seven sessions. The stochastic indicator and the RSI are both overbought, but continue to issue a buy-signal. The 5-period moving average is at 71.56. The top of the Bollinger band is at 72.78 and the lower edge is seen at 65.30. We would not be surprised to see the market retreat to the 70 area. If you look at the weekly chart, you will see reverse head-and-shoulders, bottom. The indicators are uniformly issuing a buy-signal at overbought levels. The monthly chart is also bullish, but overbought.
Gold has been in a downtrend since mid April. The downtrend line for the Monday session is at 657.20. The stochastic indicator and all the indicators that we follow, are issuing a buy-signal. The 5-period moving average is at 654.10. The top of the Bollinger band is at 664.18 and the lower edge is seen at 645.13. The downtrend line holds for the weekly chart, as well, making that number more important. The indicators are uniformly issuing a buy-signal, on the weekly chart. We wouldn’t want to see a close below 640.00. We have a buy-signal, on the monthly chart also. Gold bugs unite; it looks good for the yellow metal.
Jeanette Schwarz Young, CFP, CMT
Box 1952 c/o New York Board of Trade
One North End Avenue
New York, New York 10282