Live Cattle Futures chart for January 20, 2014

Option Queen Letter

By aaron on January 20, 2014 in livestock, traders

What Bitcoin the ETF!!!!! We are hearing that the Winklevoss twins have filed with the SEC for the Winklevoss Bitcoin Trust. In case you have forgotten, the Winklevoss twins enjoyed fame regarding their legal tangle with Mark Zuckerberg regarding Facebook. Tulips anyone?

N’uff said!

Live Cattle Futures chart for January 20, 2014

Leading up to the financial crisis of Lehman Bros….cattle cost an average of about 95 cents a pound. Today, the cost is $1.40 a pound. During the Financial meltdown cattle cost 84 cents a pound and rebounded back to its normal price by 2010. Since that time, it has “gone to the moon.” The lesson here is to eat pork, much cheaper and still within normal ranges. The bigger story might be to look at what is causing this problem. We can point to the horrible weather that could have cause the ranchers to cut back on their cattle. Remember when the cattle can’t graze (free food) their food must be subsidized (cost component) and this encourages ranchers to sell their cattle sooner and thin out their herds. What, supply and demand…this is your real life example of what happens when demand is greater than the supply, the prices of those products go up…..are you listening Chairman Bernanke and Chairman Yellen, this has little to do with printing money. The Japanese should take a look at that model also. Just think if what would happen to the price of beef if poultry and pork were not available to replace that product. The reason the price of poultry and pork remains low is that the price of components of feed, corn (dirt cheap) and soy (steady), remains cheap.

The market this week gave the both the bullish and bearish investors some meat to chew on, neither side was satisfied and both were left with reasons to believe that their trading position was a correct one. Actually, although this market can and will attain greater altitude, we are closer to the top of the move than the bottom of the move. The risk reward is no longer that tempting and caution needs to be taken. Yes, if you are long you are doing fine but tighten up those stops and respect the risks that you are taking. Remember also that bull markets can last much longer than a reasonable man might believe. Bear markets are much faster and more vicious than bull markets and great wealth can be removed from the markets in very little time. Bull markets plod higher and bear markets whoosh lower. Perhaps that is why most pit traders we knew were always short.

The S&P 500 retreated ever so slightly in the Friday session printing a lower high and a lower low than seen the previous trading session. No real damage was done in this sideways market. We did note that the neckline of 1817.25 was removed in the Monday session, however; by Tuesday, had regained enough to close above the uptrend line. This violation is a clear reason we believe in the two-day rule. That rule states that if you violate a line or number that if must continue for two-days to be valid. Clearly this was a “one-day wonder.” It did tell us that there is enough worry to push the market lower but that the “buy the dips” crowd is alive and doing well. The DMZ or demilitarize zone is between 1809.50 and 1815. Should the market close below the 1809.50 level for two days, the door will be open to levels at 1775 and perhaps lower. The up trending channel lines are 1829.25 and 1842.87 and the down trending channel lines are 1828.18 and 1848.66. The 5-period exponential moving average is 1834.21. The top of the Bollinger Band is 1847.58 and the lower edge is seen at 1834.21. Notice that the Bollinger Bands are contracting and appear to be reading for an expansion. That should alert you that the market will make a violent move sooner rather than later. This is a very short-term signal. All the indicators that we follow herein are issuing a sell-signal. The medium term uptrend line is at 1812. We could literally fall to that level and continue in the medium term uptrend. We remain above the Ichimoku Clouds for all time-frames. The 60 minute 0.2% by 3-box chart continues to point higher. This chart is telling you to say the course and remain long. The daily 1% by 3-box chart agrees with that finding. The only negative we can see on both point and figure charts is that the RSI is overbought, however; continues to point higher.

The NASDAQ 100 printed a new high for 2014 in the Wednesday trading session and tried to repeat that print in both the Thursday and Friday sessions. The miss was by the smallest of margins but a miss nonetheless. The DMZ (demilitarized zone) for the NASDAQ 100 is between 3509.50, a warning level, and 3492.50. Should the market breech the lower level, we will have “a look out below” signal opening the door to 3413 and 3373. Again we stress that the close must be for two-days in a row, no one-day wonders accepted. The stochastic indicator, our own indicator and the RSI are all flashing a caution and sell-signal. The Thomas DeMark Expert indicator is overbought and continues to point higher. The 5-period exponential moving average is 3578.96. The top of the Bollinger Band is 3614.98 and the lower edge is seen at 3497.99. We are above the Ichimoku Clouds for all time-frames. The monthly chart does have pole like qualities, not a good sign. That said, we must tell you again, markets can rally for longer than you might believe possible and can fall for longer than you believe possible such is the nature of markets. The Friday session was an outside day, in other words the high was higher than the Thursday session and the low was lower than the Thursday session. To make it even more dramatic, the Friday session had a larger real body than did the doji-like session seen on Thursday. The 0.2% by 3-box 60 minute chart continues to paint a bullish picture. The daily 1% by 3-box chart is equally bullish. Bottom line is; proceed with caution.

The Russell 2000 printed a life of contract new high in the Friday session and then, promptly retreated to close down 1.40 on the day. So here again we see a higher high and then a lower low indicating that we have a key reversal and an outside day. Does that mean that the market has quit and is going to dive, no, it just warns you that something is getting a little toppy and that either a pause or retreat will likely follow. All the indicators that we follow herein have issued a sell signal. The 5-period exponential moving average is 1163.83. The top of the Bollinger Band is 1176.48 and the lower edge is seen at 1132.28. The gap left on the chart on December 23rd was only partially filled. Do not be surprised to see the market try to fill that gap, maybe not immediately but in the not too distant future.

Crude oil traded slightly higher in the Friday session. All of the indicators that we follow herein are issuing a buy-signal with plenty of room to the upside. The 5-period exponential moving average is 93.73. The top of the Bollinger Band is 101.57 and the lower edge is seen at 89.92. We are below the Ichimoku Clouds for both the daily and the weekly time-frames but are above the clouds for the monthly time-frame. We need to see this market stay above 91.24 for us to remain bullish this market. We do not believe the action in the Friday session was bullish. The market printed a high for the week and then retreated. We shall see. The 60 minute 0.75% by 3-box chart has no uptrend line and several internal downtrend lies. The indicators on the point and figure chart continue to point lower. If you really want to worry, look at the daily 1% by 3-box chart where you will find a target of 65.31 and a strong downtrend line.

Gold rallied 13.30 dollars in the Friday session with a third attempt to break above the week’s high, posted on Monday, of 1255.30. The high of Friday was 1254.60 just shy of the Tuesday attempt. The line in the sand is now 1255.30 a level which has been attempted three times. That level is just below the Ichimoku Cloud on the daily chart. We are below the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is 1245.67. The top of the Bollinger Band is 1263.45 and the lower edge is seen at 1185.43. The 1% by 3-box daily chart continues to show stress in this market with serious downtrend lines. The RSI on that chart is grossly oversold but is not giving us buy-signals. Our own indicator is mixed, at best. The 0.5% by 3-box 60 minute chart has a downside target of 1155.61. We do see an internal upside line on this chart…some hope for the bulls. Both the RSI and our own indicator are issuing a buy-signal.

The US Dollar Index pulled back to 80.48 earlier in the week as expected and finished strong closing net up at 81.20. The Bollinger bands are starting to expand with the upper band at 81.23 and the lower band at 80.04. The 20-period simple moving average is 80.63, the 5-period exponential moving average is 80.96 and we are currently above both. Both of the indicators that we follow are issuing clear buy signals. The daily candlestick chart continues to show resistance/a target at 81.50 with continued support at the 80.49 level. Looking to the weekly chart we see further confirmation of the 81.50 level. If this market really gets ambitious it could move all the way to 81.75. On the downside there is support at 80.63 and 80.14 below that.

The 60 Minute .05 x 3 Point and Figure Chart shows the index continues to be in an uptrend. Several internal trend lines have formed. The upside target of 81.50 remains on the chart and there is now a newly activated upside target at 82.05. A clear triple top at the 81.10 level has been broken, which is a clear sign of continued bullish action.