April 15th, 2018

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CFTe, CMT, M.S. and Jordan Young, CMT
April 15, 2018

With trade war threats, gassings in Syria and sensational news both fake and real, is there any wonder that the volatility of the market has increased from last year? The good news is that as this blitz of news continues, people (the public) become accustomed to the news and are no longer shocked and scared into trading basis the news. We are returning to our ho-hum volume and action. Today we are reminded that taxes are due tomorrow. Where are the big tax cuts and where will these precious dollars be spent? Good question, our guess is that the money will be spent on bills and debt rather than buying something discretionary. The average wage earners are still having difficulty paying obligations, the gen-Xers are cautious, the millennials are paying off student loans and the seniors are broke. The bifurcated economy of rich vs. poor is very clear. The rich get richer and the average worker is just able to pay bills so where is this surge of buying going to come from? No surge in buying means no increase in production. Maybe the FOMC members should go undercover and get jobs and pay bills to see what the majority of Americans are faced with.

As to interest rates: as rates move higher they compete with stocks for those seeking yield. It is not a far reach to suspect that investors seeking safety will swing back to investing in treasuries rather than in stocks. This hasn’t really happened as yet but treasuries, as interest rates ratchet higher, will compete for investment dollars where safety and income is required.

The S&P 500 lost 4.75 handles (points) in the Friday session. The good news is that the index managed to take out the previous day’s high and did print a high low than seen on the previous day. There is a horizontal resistance line at 2680.50 Should we be able to close above that line, we will travel to 2700 with a stop at 2722, 2760 and then 2788 where we will find resistance up to 2802, above that area, we could challenge the highs. On the other hand, should we close below 2639, we will revisit 2608, 2585 and test the recent low of 2552 The RSI has turned negative without ever getting to overbought levels and the stochastic, although still on a buy, has rolled over and will likely issue a sell signal within a session or two. The Bollinger Bands are contracting which indicated that the volatility is subsiding. The point and figure chart actually looks okay. The most frequently traded price was 26655.90 where 6% of the day’s volume traded. Clearly the 10 minute TradeFlow chart shows that the heavy volume for the morning ended at 11am and then picked up again at 2:50pm into the close.

The NASDAQ 100 lost 28.60 handles (points) in the Friday trading session. Although this index closed down on the day, it did leave a positive on the chart when it removed the previous day’s high print and managed to print a high low for the day. As to the indicators, the stochastic indicator is rolling over to the downside and will likely in several days, issue a sell signal. The RSI has turned down at 50.58 indicating that there wasn’t enough power in the recent rally to push it to an overbought level, this is a negative. The volume is beginning to subside. The Bollinger Bands are contracting telling us that the volatility is also lessening. Should this index close above 6717.75, it will be in a position to reach for 6849.25, 7009 and then 7188.50. On the other hand, should the index close below 6544, the door will be open to 6429.72 6326, and 6230.25. The most frequently traded price was 6658.20 but the highest volume of 7.7% was seen at 6655.50.

The US Dollar Index gained 0.059 handles (points) in the Friday session. This chart action shows a market that has been going sideways since January with only two probes above 90.45. Even with all the twitter blasts, the US Dollar hasn’t done much of anything. We did notice that the range is getting narrower but not by much. The very flat Bollinger Bands are beginning to narrow but only ever so slightly. The indicators are all continuing to issue a buy-signal but also show that there is no momentum in the market. The volume is declining. The most frequently traded price was 89.48. When looking at the weekly chart, the US Dollar Index remains below the downtrend line.

Crude Oil gained 0.32 handles (points) in the Friday session. Crude oil gain in all five of last week’s session and has closed above the horizontal resistance level for two days. Although some of the indicators seem to be rolling over to the downside, they continue to remain on the buy-side and have not issued a sell-signal. The breakout above 66.66 was seen on heavy volume. The recent news has taken credit for this rally; however, a breakout is a breakout. Many times journalists look to the news for an excuse for a market reaction. We look at the charts. The monthly chart for crude oil shows that it has broken out to the upside. Is $80 next?

Gold gained 6.2 handles (points) in the Friday trading session. We remain in a trading range with only a single probe above the January high of 1365.40. Both the stochastic indicator and the RSI continue to issue a buy-signal. The monthly chart shows that we are trending higher with hither lows but that we have heavy resistance at about 1366. Should we break above that area for two consecutive days, we would consider that action a major breakout to the upside indicating that 1400 is a real possibility.

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Past performance is not necessarily indicative of future results.
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