Option Queen Letter

The world hasn’t fallen apart yet, spring is in the air and the buyers have been swarming looking for bargains in the stock market. Yield of short term Treasuries and money market funds are so low that money is fleeing the safety of these markets and trading off risk for yield. Amid all of the instability of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) some sanity is coming to the surface. It does appear that Greece will receive some help however, Greece will have to put in place some austere changes that could lead to further strikes. This will be sorted out.
Next week is roll-over week for the S&P 500’s and the other financial indices. Next Thursday, March 11, 2010, the front month, will be June. Ah, the thoughts of spring are in the air and the weather here in the northeast is beginning to yield to the seasonal change which is approaching.
What we can and do expect to see is a return of volatility in the markets next week as the futures traders move their positions from March to June. This is called the switch or spread. When interest rates are low, it is likely that the number will be a negative number, when interest rates are high; the number becomes more positive. In other words, for the current month the price of the futures contract will be higher than the roll month and thus you are paid to switch. This will change once interest rates begin to rise again. The switch has begun but will really be seen on Wednesday when most will move from March to June.
We are now entering real estate agents’ favorite time of year, the spring real-estate buying season. People that have to move start their search now so that they might be able to find their dream homes and be moved in and settled before the fall classes begin for the children. Because there is such a large backlog of unsold houses and foreclosures in inventory, it is likely that home prices will continue to feel the pressure of too much supply in the market. The spring selling season will be better than the fall and winter season but it will fall short of expectations.
The US Dollar index has taken a breather of late and retreated. Danger hangs around 79.695 where the Market Profile chart warns of instability.
This information is confirmed by the uptrend line at 79.369. The stochastic indicator, the RSI and our own indicator are all issuing buy-signal. Please note that the Bollinger bands are getting very narrow, warning us that there will be a violent move in the near future. Naturally, it doesn’t tell us in which direction that move will take the market.
The Thomas DeMark Expert indicator continues to issue a sell-signal. We are above the Ichimoku Clouds for only the daily time-frame and are below the clouds for both the weekly and the monthly time-frame. Remember, we will have the jobs report on Friday and that likely will push the market around a bit.
S&P 500 daily chart shows the Thomas DeMark going higher at overbought levels, stochastic indicator overbought and issuing a sell-signal, RSI at overbought levels and our own indicator issuing a sell-signal. The downtrend line is at 1123 and the uptrend line is at 1099.53. When a channel is drawn on this chart you see the range between 1099.53, on the downside and 1138.40 on the upside. Remember, we will have some nervousness today as we await tomorrow’s “Jobs” data. We believe that the data will not be as awful as expected but awful nonetheless. We are floating just above the Ichimoku Clouds on the daily and the weekly charts.
We are below the clouds on the monthly chart. NASDAQ 100 is backing and filling at very overbought and extended levels. The RSI is at overbought levels but is not issuing a sell-signal, the stochastic indicator and our own indicator are issuing a sell-signal, and the Thomas DeMark Expert indicator is overbought.
The uptrend line is at 1825.41. The market looks a little heavy and likely will back and fill. We are above the Ichimoku Clouds for the daily and the weekly time-frames, we are in the clouds for the monthly time-frame. There is a downtrend line on the monthly chart at 1844.03. Should the NASDAQ 100 find the strength to close above that level, it will open the door to much higher levels. The downtrend line on the daily chart is at 1859.86. Russell 2000 is grossly overbought. As a matter of fact, the chart has pole like qualities. That said, it is difficult to say where the feeding frenzy will stop.
Actually, when you look at the daily chart, you see one bull flag and a possible second forming now. We have a sell-signal from stochastic indicator, and our own indicator. RSI grossly overbought. We are above the Ichimoku Clouds for the daily and the weekly time-frames. When you look at the weekly chart, you have to be impressed with the strength of this index.