Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CMT, M.S. and Jordan Young, CMT
December 4, 2016
The bulls are running wild on Wall Street as investors scramble to figure out which stocks will benefit most from a Trump Presidency. Clearly, infrastructure stocks will benefit and would have benefited from the election of either candidate, both of whom agreed on the need to fix our aging systems. Drug stocks and small to medium capitalization stocks have also enjoyed a rally with the election of Mr. Trump. Small-medium capitalization stocks would directly benefit from the lower corporate tax rate argued for by President Elect Trump. Drug companies have surged with Mrs. Clinton’s defeat as she was a vicious attacker of the drug companies, lost the election. We always believed that Mrs. Clinton should have gone after the insurance companies who are the real devils in the world of medical costs. Alas the insurance lobby is too large and powerful to attack.
As we enter the closing weeks of the 2016 tax year, we can expect to see some tax selling and profit taking. Remember that the financial futures roll next week, the second week of the expiring month (December), to the March 2017 futures. Things will quiet down after the roll as the Holiday approaches and retailers try to make their sales before the end of the year.
While the “Jobs Report” looked good on the surface, upon dissection,, it revealed increases in mostly low paid workers with an overall decrease in the hourly rate of earnings. With an unemployment rate of 4.6%, this was a fantastic headline; however, beware, the beautiful balloon might burst with the poke of a needle, poof, it is gone….
The S&P 500 futures contract for December lost 1 handle (point) in the Friday trading session. At 8:30 the “Jobs Report” was released; the market immediately looked at the number and dropped to a low of 2187. It then went on to shake this off rallying to a high of 2191.50. After digesting the number, perhaps event reviewing the jobs report, the S&P 500 wilted down to 2186.75 by 8:50. After that, it was a rally to a high of 2197.25 by 11:20. From that point on the market did its usual baking and filling with a volume burst at 3:28 to 3:34 which slowly exhausted itself like a hot air balloon. We do see a trend to the downside in the daily chart. The Bollinger Bands are contracting, telling us that volatility is slowing down from a highly expanded level. The down sloping channel lines are 2201.33 and 2183.41. All the indicators that we follow herein are pointing lower with plenty of room to the downside. We saw a break out to the upside on the 25 by 3-box point and figure chart. The heaviest volume, in the Friday session, was seen at 2190 where 8.6% of the volume traded. The most frequently traded price in all sessions was 2189.50 and in the day session was 2191.
The NASDAQ 100 lost 2.25 handles (points) in the Friday trading session leaving a doji-like candlestick on the chart. The stochastic indicator is beginning to curl to the upside but has not giving a signal change as yet. The RSI is flat and our own indicator continues to point lower. The Bollinger Bands have been steady but appear to be curling in a bit. This index will roll in two weeks so be prepared. The downdraft in this index has been more pronounced than the retreat seen in the S&P 500. The highest volume, 16.1%, was seen at 4734. The most frequently traded price was 4731.
The Russell 2000 lost 0.90 handles (points) in the Friday session leaving an inside day candlestick on the chart. Both the stochastic indicator and our own indicator continue to issue a sell-signal; however, the RSI is beginning to bend, pointing upward. The fun which began in the Russell on November 9th ended on November 24. The natural beneficiaries of lower corporate taxes are the small caps. The down trending channel lines are 1328.60 and 1304.10. The Bollinger Bands are contracting from wildly expanded levels. Remember we roll the second week of December. The most frequently traded price in all sessions was 1312.50 but in the day session the most frequently traded price was1315.
The US Dollar Index retreated 0.374 handles (points) in the Friday session closing at 100.725. There is horizontal support line at 100.605 which will likely support this index. Below that level there is some support at 99.89 and then good support at 99.130. All the indicators that we follow herein continue to point lower with room to the downside. The downward sloping channel lines are 101.754 and 100.402. The most frequently traded price was 100.85. The Market Profile chart is a normal bell-shaped curve. We do not expect much action in this index as we approach the roll and the end of the year, but you never know what will be tweeted next!
Crude oil has enjoyed a nice rally in the past three days opening the door to 53.38, initial resistance is 51.93. All the indicators that we follow herein continue to issue a buy-signal. The most frequently traded price was 50.75. The Bollinger Bands are expanding telling us that we will likely see more volatility in this market. The volume has been retreating after spiking on November 30th. Crude oil rallied on the “Jobs report and was able to hold on to the day’s gains. An expanding economy is good for crude oil. The past three day rally has been a little steep and we expect to see the momentum decline.
Gold rallied 8.80 in the Friday session closing at 1175.75. The next area of support is at 1115.30 and resistance starts at 1355.6 and toes to 1392.60. The wide down trending channel lines are 1322.80 and 1159.02. Both the stochastic indicator and our own indicator continue to point lower with plenty of room to the downside. The RSI, at 42.64, is beginning to curl slightly to the upside. The volume, on the downside was heavy and, on the rally in the Friday session, light. So long as the US Dollar remains strong and the FOMC is on track to raise interest rates, gold loses some of its shine. That said, should something blow up in the globe, money will run to gold as a place to hide until things are resolved. Peace is bad for gold while chaos jacks its price higher. Right now things are relatively quiet, the FOMC is on track to raise interest rates, and inflation is not a problem, thus gold is not doing well. A strong dollar is bad for gold and if the FOMC does raise interest rates that strengthens the US Dollar.
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