July 16th, 2017

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CMT, M.S. and Jordan Young, CMT
www.OptnQueen.com
optnqueen@aol.com
July 16, 2017

It is time to speak of what is and is not working here in the USA. State side, the IRS and Congress are the undisputed first place champions for what is not working. As to what is working, that honor goes to our underlying beliefs in individual liberty and freedom, thoughts from which all of the rules and laws that govern our society have been built. As John Stuart Mill so eloquently put into words “The right to swing my arms in any direction ends where your nose begins.”

Let us delve into what isn’t working insomuch as what is working is clear and easily understood. Congress does a wonderful job at taking vacations, enjoying free travel and campaigning for re-election. It is believed that out of every 40 hours of working allegedly for the people, 20 of those hours are spent in building and funding the next re-election campaigns. Further, if these men and women are to represent us, “We the People,” should they not have to live with the same health insurance and pensions that the people they represent live on? In other words, how can we expect these elected officials to rule on health care if they do not have to live with the results of their changes. If you want a fair healthcare bill, make sure that the guys and gals writing that bill have to live with all the junk that they put in there. Pensions, why should they have better pensions than we have? If they had to live on Social Security, perhaps they might think a bit longer about how their decisions might change it.

So now we are up to the IRS, which works as it should work but is not a fair taxing agency. We live in a bifurcated system of those who pay taxes and those who do not pay taxes but make money. Below is an excerpt from the May 28, 2017 edition of this letter.

“It would seem that adjusting taxes would help, but throwing out the entire tax system might be a better start to helping us move to robust expansion. We need the average income earner to spend money. For that we need to lower the taxes for the average worker in addition to making sure that everybody that earns money, both reported and not reported (off the books), pays his or her share of the tax burden. We can no longer live with a bifurcated economy. An example of this is the painter who is paid in cash and pays no Federal Income tax on earnings while collecting welfare checks and housing assistance. The health aid that works off the books and is on Medicaid, welfare and housing assistance. We are cultivating anger in those of us who pay taxes. Something has to be done to address this inequity in our tax system. The suggestion that the tax code be collapsed into three brackets does not address this problem. Eventually there will be an uprising of anger based on frustration from the group most affected by this problem, the average income earner. Have we learned nothing from this past election? The public is tired of the status quo and wants change. Starting to make changes in the tax code that would help the average income earner and would be a good start. The suggestions recently made do not address the hot button issues. This sort of change will free up money and help to bring the consumer back to shopping which will help expand the economy.”

The S&P 500 advanced 12 handles (points) in the Friday session and traded higher for the sixth consecutive day. Historically, this market rarely goes higher more than seven days in a row without a retreat. The retreats are generally shallow as the “buy the dips” crowd appears trying to get a piece of the rally. All the indicators that we follow herein continue to point higher. The Bollinger Bands are again expanding alerting us to increased volatility. The next upside target is 2500. The most frequently traded price in the overnight session including the day session was 2445, the most frequently traded number for the day session was 2456. The highest volume was seen at 2456 where 8.5% of the day’s volume traded. The upside breakout is very clearly shown on the point and figure chart. It is interesting to note that the new high was seen at 3:40pm after which, the market retreated on high volume then regained a bit into the close. Looked like a short-covering exercise in front of a weekend.

The NASDAQ 100 rallied 49.50 handles (points) in the Friday session. This index, although close to a new high, has not yet made a new high. All indicators that we follow herein continue to issue a buy signal. The old high was 5898.47. We are only a good rally away from that high. It is; however, likely that we will retreat before attacking that high. By the way, we do not expect a dumpster retreat but rather a shallow retreat which will be fueled by the buy the dips crowd. Eventually, we will have a serious retreat but unfortunately, our crystal ball is out for repair and unavailable to us for this writing. Basic rules of the game are, let the market tell you where it is going, do not try to tell the market what you want, it doesn’t care what you want. The most frequently traded price in the 24 hour trade was5796, while the most frequently traded price for the day session was 5840. The most volume, 9.5% for the session was seen at 5816. This current rally has left a rather steep slope on the chart and it is likely that backing and filling will be necessary to normalize this slope.

Russell 2000 gained 3 handles (points) in the Friday session. This index really looks wild on a chart and truly looks like a manic mess. We are just a tiny rally away from making new highs. All the indicators that we follow herein continue to issue a buy-signal. The Bollinger Bands are beginning to expand which tells us that volatility is again returning. Should the market ever begin a serious sell-off, this is the index to short. Naturally you will need lots of TUMS for your tummy to play in this yard. The most frequently traded price was 1425. The most frequently traded price for the day session was 1428 for the day session. The market reached the high for the session at 3:40pm as traders flattened their positions and left for the beach. For those seeking volatility, look no further than the Russel 2000.

The US DOLLAR Index retreated 0.603 handles (points) in the Friday session. We are trading inside the down-sloping trading channel. There are narrower channel lines also present between 97.74 and 94.86. The wider channel lines are 96.22 and 94.072 (these lines were drawn on July 4th and the still remain valid. All the indicators that we follow herein continue to point lower without a bend or probe to the upside. We are oversold but not as oversold as we were on June 30, 2017. The rally after the June was not strong enough to allow any of the indicators to get to neutral. This tells you that the rally was an oversold bounce and nothing more. Naturally the Fed would like to see our US Dollar weaken so that some inflation or price increases can return to our markets. As the dollar weakens both gold, and oil appreciate as do the prices of imports coming into the USA. Additionally, as the Euro Zone stabilizes so do their bonds which also helps to keep their investments from leaving their shores to the USA where interest rates are higher. Remember these trades must be hedged and with an appreciating currency in Europe and stronger bonds in Europe the hedge cost gets higher. This is an interesting play. There should be good support for the US Dollar Index at 94.036.

Crude Oil gained 0.60 handles (points) in the Friday session. The next resistance level is 47.32. Should this market remove that price on a closing basis, we can expect to see the market run to 48.62 and then perhaps 52.22. All the indicators that we follow herein continue to point to the upside with plenty of room to run. The intraday chart shows us that there was high volume buying into the close of trading on Friday. That could mean that the traders were short and looking to close out their positions or that there was some buying in front of the weekend. We believe that it likely was short covering.

Gold gained 10.70 handles (points) in the Friday session. Both the stochastic indicator and the RSI are pointing higher with plenty of room to the upside. We are at the upper edge of the down-trending channel lines. The Bollinger Bands are not giving us any info9rmation. Gold has a double top on the chart at around 1293.3 and good support at 1194.5. It is still stuck in its trading range. Should this market fail to rally and stay above 1214.30 we do see the possibility of revisiting 1123.9. Gold rallied early the Friday session and spent the rest of the day, after a retreat, regaining some of the value lost in the sell-off. The market closed at 1228 mid-point between its open and the high.

Risk
Trading futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors.
Past performance is not necessarily indicative of future results.
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