September 3rd, 2017

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CFTe, CMT, M.S. and Jordan Young, CMT
September 3, 2017

Hurricane Harvey visited the oil patch and dumped massive quantities of water on Houston and the surrounding area. Wind damage and damage in general was huge. The insurers generally calculate these thing on their catastrophic costs so, the hurricane isn’t an event that would surprise the covering insurers. A positive for the insurance companies covering that area is that the majority of home owners were not insured. While that certainly is a negative for the home owners, it is a positive for the insurance companies. As to the oil and gas industry, a two-week upside blip in the cost of gasoline has been seen. The cars and trucks destroyed by water damage will help those who were underwater on their car loans and the car industry which will enjoy a little bump to the upside as these cars and trucks are replaced. This is also a positive for the car industry which recently has been underperforming. All of these items are a positive for the economy in the Houston area which will have to rebuild what was damaged. This will give the construction jobs a boost and will help the sale of cars and trucs in that region. The bottom line is, that gas prices will retreat, oil refining will come back on line, new or used cars and trucks will be sold to replace the water damaged vehicles and construction workers will be busy repairing and rebuilding the damaged areas. These are all positives for the Houston region.

As to the market; interest rates will remain low and the FOMC will begin the process of unloading some of the bonds that are being held. We believe that the process will be allowing the bonds to mature without replacing them thus lessening the bonds and mortgages in the portfolio.

The jobs report reflected several things. First and foremost, the average worker is just about squeaking by with little discretionary income left at the end of the month. There is a good deal of underemployment and the average worker is happy to have a job. The younger workers are replacing the more expensive older workers. This leads to a less efficient workforce insomuch as they lack the experience seen with the older workers. Then there are the robots taking over manual repetitive labor. Naturally there is human supervision. Don’t worry, sales will not be replaced by robots. As the US Dollar weakens, cheap imports steal sales from domestic products and our balance of trade becomes more unbalanced.

The S&P 500 gained 3.75 handles (points) in the Friday trading session. We tested the horizontal resistance line at 2480.50 and were unable to pierce that line. The high of 2488.50 stands above our heads and if pierced, will likely cause some short-covering, which would propel the index higher. Once that is accomplished, we likely will back off. All the indicators that we follow herein continue to point higher. That said, the stochastic indicator is curling over but has not issued a sell-signal. The volume in the Friday “Job” session was lower given the important release of that data. It is likely that the market will try to take out the high just to see what good to cancel orders are resting above the high. Should be interesting. If the volume spikes on that, we will know that the shorts are covering and that the trend following systems have jumped on board. The most frequently traded price was 2471.30, most of which was traded before the New York open. The highest volume for all sessions was 2475.2. The point and figure chart is positive. The 10 minute intra-day TradeFlow chart shows that the market spiked higher with the release of the “Jobs” report at 8:30am but then traded lower on volume until 9:50 when it printed the day-session low. From that point forward, the volume moderated and even became somewhat light. The high for the day was printed at 1:00pm on light volume. The volume was light until about 3:50 when some action was seen into the close. That action took the market to the lower range of the day session.

The NASDAQ 100 lost 4.25 handles (points) in the Friday trading session. The market did print a new all-time high but was unable to close there and retreated to 5986.50. The RSI is now issuing a sell-signal and the stochastic looks as though it might join the RSI in a few days. Our own indicator is curling over, but is far away from issuing a sell-signal. This past week’s rally has left an unsustainable upward slop on the chart and it is reasonable to expect this index to either back and fill or retreat back to about 5945 or so area. The Bollinger Bands are again beginning to expand show us that we are becoming more volatile. The most frequently traded price was 5995.60, most of which was in the overnight session. The heaviest volume was seem at 5990.40 where 16.2% of the volume was traded. The day’s high was seen at 8:30 when the “Jobs” report was issued. The low for the day was seen at 10:00am. The heaviest volume for the day occurred between those times. For the rest of the day the market traded in-between 5998.75 and 5985.

The US Dollar Index gained 0.197 handles (points) in the Friday session. The downtrend line is at 93.2228 and this index must close above that line for any short to become concerned. Our very short-term up trending channel lines are 92.05 and 93.518. All the indicators that we follow herein are pointing higher. The market shows us that the US Dollar index is in a downtrend which, unless it pushes above the downtrend line is in an organized decline in price. This decline is not erratic but rather a slow erosion of the US Dollar’s value. This is a deflationary picture because as the US Dollar becomes weaker, imports become cheaper and thus manufacturers here in the USA cannot increase their prices. This is a two-edged sword because a strong US Dollar prevents global competition but also hurts our exports insomuch as our products are too expensive. A weak US Dollar encourages global competition for products making imports cheaper. The low for the day was printed at 8:30 and the high for the day, was printed at 10:00. The market did very little after that and closed nearer the high than the low for the day.

Crude oil gained 0.12 handles (points) in the Friday session. The Bollinger Bands are beginning to contract again. All the indicators that we follow herein are issuing a continued buy-signal. Bothe the medium-term and short-term trend lines are pointing down. The next support level for crude oil is at 44. The next resistance level is 47.35 and then 49.43. Crude oil seems to be stuck in a range for now.

Gold gained 7.7 handles (points) in the Friday session. Both the stochastic indicator and the RSI are in overbought territory. The fast line on the stochastic indicator is curling over and likely will issue a sell-signal in the next two days. The RSI is still pointing higher although it appears to be losing some upside momentum. Our own indicator is about to issue a buy-signal. Remember gold operates as a default currency whenever there is unrest in the globe. North Korea’s antics are causing stress and we see it in the action of gold. The high in gold was seen at 8:30 and the low was seen at 10:10am. This reflect a reaction to the “Jobs” report. We closed the day closer to the highs of the day. Gold is a picture of human emotions, a anticipation of a better number, a failure of that number, depression and then an “oh well” attitude.

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