Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CMT, M.S. and Jordan Young, CMT
November 20,, 2016
Yowie…….look at the US Dollar’s rise! Ten days of back to back rallies took the US Dollar to a high of 101.54 in the Friday session. Next target 102.53! That said, it is time for the US Dollar to retreat and, as they say, back and fill a bit before attempting to further its progress higher. The S&P 500 has not as yet removed the highs seen in August. Interest rates have run to the upside as money exited the trade. All of this puts pressure on home buyers who would like to lock in the lowest rate possible for their mortgages. This in turn, spikes the sales of real estate stealing some of the volume from the future months as buyers try to lock in their rates now.
Meanwhile there is talk of inflation…….we say not unless Trump’s tariff find their way through the process. We continue to believe that the strong US Dollar will hurt the multinational companies’ bottom line. We are happy to report that the strong US Dollar has helped food prices drop as well as other commodities that are traded in US Dollars retreat!
Shoppers are out in full force shopping for the Thanksgiving Holiday and are enjoying lower food costs at the supermarket. The Christmas Shopping Season will enjoy cheaper prices on most articles except those “Label” high end goods which continue to demand astronomical prices for their wares. Channel, Louis Viton, Gucci etc. continue to price their goods somewhere in the stratosphere.
The S&P 500 gave up 4 handles (points) in the Friday session. Both the stochastic indicator and the RSI are pointing lower, our own indicator continues to issue a buy-signal. We are very close to the August highs of 2191.50 and just a little rally will push the index to that level. The Bollinger Bands are expanding and warn us that the volatility is not over. When looking at the Heikin-Ashi daily chart of the S&P 500 futures we see a steady up trend line at 2170. Both the stochastic indicator and the RSI on this cart continue to point high at overbought levels while our own indicator is flat. The point and figure, 25 by 3-box, chart is positive. The most frequently traded price was 2182 and thigh highest volume was seen at 2180 where 13.1% of the day’s volume traded.
The NASDAQ 100 lost 19.25 handles (points) in the Friday session. The rally in these shares has not been as robust as the rally in the S&P 500. Both the stochastic indicator and the RSI are rolling over to the downside although only the RSI is issuing a sell-signal. Our own indicator continues to point high at overbought levels. The Bollinger Bands are flattish at moderately expanded levels, but nothing like the expansion seen in the S&P 500’s Bollinger Bands. The volume has been retreating all week with the lowest volume in the Friday session. The most frequently traded price was 4826.50 but 4809 is where 13% of the day’s volume traded. We believe that there will be some backing and filling before progress to the upside is made.
The Russell 2000 rallied 1.80 handles (points) in the Friday session. The Russell 2000 is up for eleven trading days and made a life-of-contract high, 1316.60, in the Friday session. Both the stochastic indicator and the RSI are overbought and pointing higher. Our own indicator I somewhat flat issuing a sell-signal. It is though that the tax relief that Trump spoke about during his campaign could really help these small capitalization issues reducing their tax burden from 35% to 15%. Perhaps this inspired the rally along with short covering. The most frequently traded price in the Friday session was 1308.50. This index is overextended but don’t fight the trend, the trend is your friend.
The US Dollar Index and the Russell 2000 look very similar regarding the rally seen in both instruments. The US Dollar Index rallied 0.479 in the Friday session. It is important to note, that this rally has been so steep that it will need to stop and rest a while before attempting to rally further. The slop of the uptrend is not sustainable. That said, all the indicators that we follow herein continue to point higher. The most frequently traded price was 101.25. Remember a strong US Dollar is deflationary unless the threatened tariffs on imported goods are enacted. At that point, the effect of tariffs would be inflationary. We do not know how this will be resolved but clearly the market is expressing fear that trade tariffs just might be put in place.
Crude oil closed the Friday session at 45.58. Both the stochastic indicator and the RSI continue to issue a buy-signals. Our own indicator has just issued a sell-signal. The Bollinger Bands are contracting a bit. So far it looks as though crude oil will test the 42.55 level. The up trending channel lines are 46.89 and 44.27. The downtrend line is 45.84. The weekly chart looks a bit better than does the daily chart. We have an uptrend line at 44.55 and a down trend lie at 47.81.
Gold closed the Friday session at 1207.30 right on the horizontal support line. Both the stochastic indicator and the RSI are oversold but have not issued a buy-signal. The Bollinger Bands are expanding indicating the more volatility is on the horizon. The most frequently traded price in the Friday session was 1207.50. The next support level for gold is, 1190.30. Below that level is 1165. Overhead resistance is 1215.40, 1249.5 and11271.40. The monthly chart looks as though gold has rolled over and could likely retreat further.
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Past performance is not necessarily indicative of future results.
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