By the Option Royals
Less than two weeks to go until Thanksgiving and the ads are totally focused on the Christmas Season. Who could blame them? Suddenly the guy and gal on the street has a little more jingle in their pockets, thanks to the implosion of crude prices, and actually can pay their bills and perhaps start their Christmas shopping. Retailers are hungry and will slice and dice their prices to capture some of this benefit from lower gas costs. Yes, there is a heavy debt overhang but hey, it’s Christmas Season….joy to the world, good will to all and extra money to spend.
In case you hadn’t noticed, nothing much has changed globally speaking; Putin continues his aggression, Afghanistan is a mess, Iran-Iraq-Syria and now Turkey….duck and cover! Egypt is unusually quiet and the Palestinian and Israeli debacle continues. Then there is Ebola…..Yet, the markets continue higher. There is an easy explanation for this and it is that all of the above is not on our shores and, by the way, the USA is in a stronger position than many other countries are in. To date, the USA is the cutest pup in the pool and money is flowing to our shores for income and security.
The slowdown of jobs in the oil sector has not been seen but if the cost of crude remains under pressure, much of the drilling and industry created from oil production will slow down. There comes a point when the debt ridden oil industry will cut jobs and close down their production because the production of crude will not be profitable. This is exactly what OPEC is hoping for. They are not thinking beyond the immediate gratification of more exports. The industry that produced jobs in the oil industry bleeds into other industries. These products are transported and if there is less production, there is less to transport. The list goes on and on.
Crude oil is slipping in price as the US Dollar appreciates insomuch as the product is priced in US Dollars. This doesn’t mean that everybody is getting cheap crude but only those whose currency is the US Dollar. If you are in Europe and the euro is dropping in its value when compared to the US Dollar, you have not received a price break at all thus the spending seen in the USA via the lower cost of crude products for heating, traveling and utilities is not translated off our shores. Remember you need increased demand and less supply for have price appreciation. This reduction in the cost of oil could not have come at a better time for the US markets. We are feeling an arctic blast and it is the Christmas Season.
The S&P 500 rallied 0.26% in the Friday session on average volume. This market is above the Ichimoku Clouds for all time-frames. All the indicators that we follow herein are overbought and continue to point higher. The stochastic indicator has been overbought for almost a month. This should stand as a reminder to all that we can stay overbought or oversold for extended periods of time and being overbought or oversold is not in itself a signal to do anything. What it is telling you is to be cautious. The 5-period exponential moving average is 2033.64. The top of the Bollinger Band is 2074.32 and the lower edge is seen at 1910.39. The chart really looks as though the market is creating a rounding top. Time, of course, will tell us if we are correct. The 0.1% by 3-box 60 minute chart has an upside target of 2063.55 and is very positive. The daily 1% by 3-box point and figure chart is also very positive with an upside target of 2371.33. The market looks as though it will back and fill here. This market needs to either expand its volume or purge some of its overbought condition. In either case, we are not looking for much more than shallow dips, where the buy-the-dips crowd will snatch up shares. We cannot tell you when this market will reverse because so far this market has been resistant to retreat. We do believe that a retreat will come but we are not there so far. This could change at any moment in time, but the market is rallying in the face of global turmoil and weak growth, what can we say except to let the market tell you where it wants to go and certainly do not try to tell it what you want it to do because, it simply doesn’t care.
The NASDAQ 100 closed at 4225.00 near the Thursday high of 4227. The push higher was very positive and looks as though this market wants to go higher. Yes, we are really overbought as measured by our indicators but we see a fresh buy-signal at this level. Had you used the 5-period exponential moving average as a trigger to stay long, you would have been long since October 20, 2014 and you still would be long this index. The 5-period exponential moving average is 4197.49. The top of the Bollinger Band is 4284.28 and the lower edge is seen at 3918.38. The market closed 75 off the high of the day. We are above the Ichimoku Clouds for all time-frames. The daily 1% by 3-box point and figure chart looks extremely positive. The 60 minute 0.1% by 3-box chart continues to point higher with an upside target at 4242.15 not so far away. The most frequently traded price was 4208.25. This was also Thursday’s most frequently traded price as well. It is interesting to note that the high print in the Thursday session occurred in the early part of the trading day while in the Friday session, the high was seen at the end of the session. Does that indicate that the shorts threw in the towel and covered? We believe that the trades were flattened at the end of the day because of the looming uncertainty that the weekend brings. This could have caused the last minute run-up. Whatever reasons are given, the market close with a great amount of strength and that is to be respected.
The Russell 2000 declined in the Friday session although the S&P 500 and NASDAQ 100 gained for the day. The decline of 40 cents left a doji like candlestick on the chart. We were impressed with the contraction of the range for this index. Both our own indicator and the stochastic indicator continue to point lower, the RSI is flat on the overbought side of neutral. This index has not made a new high on this run to the upside. The volume has not been impressive. The most frequently traded price was 1172.32 which accounted for 18.4% of the day’s volume but it was not the volume leading price that goes to 1171.64 which accounted for 19.3% of the day’s volume but traded in fewer brackets (half-hour trading periods). The 110 by 3-box point and figure chart shows that we are stuck in an area of congestion. Again we remind you that this index houses many of the issues that will be used for tax-loss selling. This index will also be the winner in the January rebound as the issues are repurchased.
The ugly chart award goes to crude oil this week which actually traded to 73.10 before rebounding modestly in the Friday session. Good news for the public but has a bad news back-side to it. The 5-period exponential moving average is 76.30. The top of the Bollinger Band is 83.01 and the lower edge is seen at 74.72. The Bollinger Bands seem to be expanding. Both the stochastic indicator and the RSI are issuing a buy-signal. Our own indicator continues to look for lower prices in the future. We are below the Ichimoku Clouds for all time-frames. The 60 minute 0.2% by 3-box chart has an upside target of 79.33 but there is a downtrend line that will cause problem on any rally attempt. At least this chart is totally bearish and gives some glimmer of hope for a rally. The daily 0.9% by 3-box chart has a downside target of 63.90; however, if we change the box size to 1% there is no downside target as yet. There is nothing positive about this chart except the lack of volume at the lower levels. We do have a horizontal line of support at 62.90 on the candlestick monthly chart, but the 73 level and 70.44 levels will have to fall first. The Market Profile chart shows us that the most frequently traded price was 74.29, but the highest volume occurred at 75.3 in the Friday session. When looking at the daily Market Profile chat, it is clear that 77.38 will be an important price to overcome. For now, we will watch from the sidelines until a clear reversal or downside continuation occurs.
Gold rallied smartly in the Friday session tacking on 26.4 and leaving a bullish engulfing pattern. We jumped across our first level of resistance and bumped up against the 1191.7 horizontal line. There is a major downtrend line at 1233.20 taken from the July high levels. We have a downtrend line drawn from the October high which the market removed with little or no trouble. The uptrend lines, very short lines find support at 1156.16 and at 1146.00. One day does not make a bankable rally and we remain concerned. The daily 0.9% by 3-box point and figure chart still looks terrible. There is a downside target of 991.28 and multiple internal downtrend lines overhead. The 60 minute 0.2% by 3-box chart has two internal up-trend lines and looks as though this market might have further to go on the upside. The Market Profile chart has a bimodal curve and clearly shows the exaggerated range seen in the Friday session. Was it all short-covering or something else, we are not sure. Platinum rallied 14.1 in the Friday session, not as much as gold rallied. The US Dollar retreated which helped the rally in both the metals and crude oil.
The US Dollar index continues to be the wild man at the party. The index was unchanged for the week, closing the Friday session at 87.62, leaving a doji on the weekly chart. The Bollinger Bands are starting to pull together with the upper band at 88.78 and the lower band at 84.74. The index is above the 20-period simple moving average, 86.77 and just below the 5-period exponential moving average, 87.07. The RSI continues to point downward while making lower lows and our own indicator is potentially on the cusp of a buy signal. The index bounced off of our resistance level of 88.40 which has held this market in check for two weeks. Above this level, resistance is not seen until, yikes, 89.54. There is a mild amount of support at 86.97 where horizontal support and the uptrend line meet. Below this level, 84.95 and 84.31 shall act as a safety net. The 30 minute 0.05 x 3 point and figure chart continues to show two unmet activated upside targets at 88.60 and 88.40. The market continues to be in an uptrend with multiple internal uptrend lines however two of them have been broken and last week, we had the formation of a counter trend down-trend line. We are still very hesitant when it comes to putting on a NEW position with the US Dollar index. More than likely, we think the index will pull back to the 86.97 level. From there, we would not be surprised to see the index retest the 88.40 level and make its way higher. Putting on a position here may sadly resemble picking up pennies in front of a steam roller.
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment.