Quadruple Options Expiration Week

It comes as no surprise that the marketeer, those who are left standing, remain in a manic state. We must first explain that by manic we mean either too gloomy or too happy, but never normal….that wouldn’t be fun now would it? Thus we flip from one side to the other much like a ping pong ball in play.

Action in the small capitalization stocks has been noteworthy. The Russell 2000 out performed most of the indices in recent days, leading one to wonder if the “January Effect” is beginning in December. Remember, one does not have to wait until January to purchase a stock sold for a tax loss, the waiting period is in days, 30 rather than in years. This waiting period is so that the repurchase of shares will not be considered a “wash sale.” A “wash sale” is a sale and then a repurchase within 30 days eliminating that sale as a possible tax-loss. The waiting period is at least 30 days from the time of the sale.
This week is a quadruple witch options expiration week. This week, quarterly futures and options expire. Remember also, that the Russell indices will no longer offer the regular sized contract so all rolls must be into the mini’s which, are 1/5 the size of the regular contract.
Last week, while in the Russell pit on the ICE US Futures floor at One North End Avenue
A fellow trader began speculating about pensions and health-care for the ordinary citizen. He thought that if we could rotate the entire US citizenry thru congress that we could solve the Social Security problems and health care problems that loom very large in this countries future. It was his idea to employ each and every citizen of the US (those above 18), as a member of congress for a day (no pay of course…another savings). It was further speculated that if might take about five years for that task to be done, but by the end of that time, all citizens would have a pension and health-care for life. Not a bad idea. Of course the other idea is to force ordinary health care and social security retirement benefits on congress in lieu of the government perks that they qualify for. Force the buggers to live on what the population is forced to live on, then and only then, will they fix the problem. It is like the residents of an obesity clinic trying to understand starvation and hunger.
We have a vision of Chairman Bernanke ( perhaps dressed as Santa or what ever seasonal time is appropriate) standing if front of the NY FED, which isn’t far from where we work, with a soup ladle pouring out money into soup dishes to a long line of takers. Instead of the NY Federal Reserve Bank….it would say, NY Federal Reserve Soup Kitchen.
Just in case you believe the market is dull, we have a FOMC meeting this week Tuesday with the FOMC expected to cut the key rates to 0.50%. This will come as no surprise to the market. The question is what is it going to do for the public…..we guess, nothing. There is a downside to low interest rates and that downside falls heavily on those seniors living on retirement incomes that are invested in really safe treasuries. 4-week Treasury bills were sold last week with a ZERO yield, the 10-year yield was 2.47% at last week’s auction. Where are the seniors going to find the funds to live? Are they going to use reverse mortgages to pay their living costs? Food, utility and taxes have not receded with the market and thus these retirees continue to have a difficult time funding their drug and living costs on very low yields of what is left of their portfolios. As to the “Boomer” generation, retirement has become the “Ghost of Christmas Past.”
Monday: November industrial production and capacity utilization is released at 9:15. Tuesday: November CPI is released at 8:30, November housing starts are released at 8:30 and the FOMC will release its interest rate decision and statement at 2:15. Wednesday: U.S. International trade transactions will be released at 8:30 and OPEC will release output quotas. Thursday: November leading indicators are released at 10:00, December Philadelphia Fed Survey is released at 10:00, and Dallas Fed President Fisher speaks.
The US Dollar index has been retreating since it made its high on November 19, 2008. This retreat took the US Dollar index to 83.325 and 83.245. The stochastic indicator, the RSI and our own indicator are near or at oversold levels. Both the stochastic indicator and our own indicator are bending upward telling us that we could see a bounce within a day or so. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5-day moving average is at 84.90. The top of the Bollinger band is at 88.863 and the lower edge is seen at 83.958. We are in the Ichimuko clouds for the daily time-frame, above the clouds for the weekly time-frame and below the clouds for the monthly time-frame. We need to say above 82.595 to maintain a bullish bias in a corrective retreat. Breaking below 81.032 would turn the bias to bearish. There is a very short-term downtrend line at 84.905 and a longer downtrend line at 86.84. Obviously we need to get above the first very short downtrend line to stop the downward thrust of this market. On a longer basis we need to close above 86.84 to re-establish the upside momentum.
The S&P 500 rejected the lows in the Friday session closing up 1.26% on the day. The uptrend line for the Monday session is 832.12. The downtrend line for the Monday session is at 900.58. The downtrend and uptrend lines will meet on the last Friday of this month. Unless or until we move either above or below those lines, we will have a very important point of inflection at that date. A major point of inflection is seen at the end of February, so long as the low of November holds. We remain below the Ichimuko clouds for the daily, weekly and monthly time-frames. The 5-day moving average is at 889.70. The top of the Bollinger band is at 932.59 and the lower edge is seen at 780.00. Our own indicator is issuing a short-term buy-signal from the overbought side of neutral. The RSI and the stochastic indicator are not issuing anything of value. The Thomas DeMark Expert indicator is issuing a solid sell-signal. We are in the last few weeks of 2008 and expect to see the market slow down as people close out this year. This week we will hear from Goldman Sacks and Morgan Stanley. We will also have forecasts from General Electric, ITT and Merrill Lynch. The FOMC will issue its decision on Tuesday and on Wednesday, Norway adjusts their interest rates, also on the block is
Iceland whose central bank will adjust rates on Saturday. Friday, December futures go off the board. Not a boring week.
The NASDAQ 100 rallied 2.10% in the Friday session. The uptrend line for the Monday session is at 1141.75 and the downtrend line is at 1201.25. These numbers are for Monday not Friday’s numbers. The NASDAQ just needs to stay where it is to close above that short-term downtrend line. The stochastic indicator, our own indicator and the RSI are all positive for the NASDAQ, although both our own indicator and the stochastic indicator are at overbought levels. The Thomas DeMark Expert indicator is issuing a sell-signal at overbought levels. The 5-day moving average is at 1209.60. The top of the Bollinger band is at 1251.982 and the lower edge is seen at 1063.51. We remain below the Ichimuko clouds for the daily, weekly and monthly time-frames. Should this market retreat back inside the pennant, it will resolve by Thursday.
The Russell 2000 was the winner in the Friday session. This index moved 4.82% to the upside. Naturally, we are at overbought levels yet, we have just been issued a fresh by signal from the stochastic indicator, our own indicator and the RSI. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-day moving average is at 469.64. The top of the Bollinger band is at 496. 91 and the lower edge is seen at 396.48. The uptrend line for the Monday session is at 428.70. The downtrend line for the Monday session is at 471.00. We remain below the Ichimuko clouds on the daily and weekly time-frames, we do not have enough data to evaluate the monthly time-frame. We are not sure if the pattern we see on the weekly chart is a bear flag or a possible beginning of a sideways consolidation. The daily chart looks to be consolidating within a trading range. A break above 493.10 would open the door to 524 and then to 554. The upside action in this index could signal an early entrance into the January effect which, as you remember, is caused by the redeployment of money after the 30 day waiting period required in tax loss selling.
Crude oil seems to be trying to hold the line at 40.50. The market seems to be trying to form a bottom. The stochastic indicator continues to issue a buy-signal, however it is bending over and could, within a day or so, issue a sell-signal. The RSI is curling over to the downside. The 5-day moving average is at 44.71. The top of the Bollinger band is at 59.06 and the lower edge is seen at 39.86. We are below the Ichimuko clouds for the daily, weekly and monthly time-frame. We will hear from OPEC this week regarding production quotas. The problem with OPEC remain that the members do not adhere to the assigned quotas. We are getting a buy-signal on the weekly chart and the monthly chart. If courageous, nibble a little but keep your stops close.
Gold enjoyed an inside day in the Friday session closing above the Ichimuko clouds on the daily chart. The 5-day moving average is at 798.14. The top of the Bollinger band is at 842.94 and the lower edge is seen at 718.92. The stochastic indicator, the RSI and our own indicator are all curling over, only the RSI is pointing to lower levels. Both the stochastic indicator and our own indicator will issue a sell-signal within a few days. We failed to remove the highs of 833.50 last seen on November 8th. This was a disappointment for the bulls. On the positive side of the chart we did stay above the previous lows when the market declined. At this time, it looks as though we might go test the 740 area again although we probably will not go below 775.79. Should we close below that level, we will most probably test the 740 area. The weekly chart is somewhat friendlier than is the daily chart, although we are below the Ichimuko clouds. All the indicators that we follow are uniformly issuing a buy-signal on the weekly chart.
Jeanette Schwarz Young CFP, CMT
Box 1952
One North End Avenue
New York, New York 10282
www.OptnQueen.com