The Option Queen Letter
By the Option Royal
The problem that the FOMC faces is truly a difficult one. If interest rates are ratcheted higher, the US Dollar will become stronger which will impact our ability to sell our stuff to the globe. Reduced sales will lead to less production which, will lead to a leaner work-force. What is the solution? Keep interest rates where they are and hope that no bubbles appear in the economy or allow the US Dollar to appreciate and put up with increased unemployment? Both of these scenarios do nothing for the average worker who continues to struggle to pay bills and survive. Meanwhile, yield hungry investors continue to keep the markets firm. Those who missed the rally are also sitting on the side-lines waiting for an opportunity to buy in. We also see funds flowing to our market from abroad. These events are signaling that, although the markets can rally further, these rallies are taking more effort than had been seen in the past. We believe that we are in a topping process and that we will, sooner rather than later, see a retreat.
This week, many Americans will pay their income tax, then again many will not. It is estimated that between 49 to 52% of Americans do not pay any income tax. It is estimated that the wealthiest 20% of American earners pay 84% of the total taxed. This year that number will be higher. Further, 20% of Americans will be paid by the Federal Government. About half of all Americans pay no tax. Why, simply because they do not earn enough money to pay tax. Scary huh? Our basic argument is with those whopay no tax because they never declared income. This group earns money below the radar, charging significantly less for their services if, paid in cash. This group exists because we are bargain hunters, and hire people that we can afford. This in turn encourages people to not pay taxes or pay less tax and work for a reduced cost if payment is made in cash. Isn’t life grand!
The S&P 500 rallied 10 handles, 0.48% in the Friday session ending the week on a high note. Although we are nearing overbought levels there certainly is more room on the upside. The 5-period exponential moving average is 2081.14. The top of the flattish Bollinger Band is 2108.40 and the lower edge is seen at 2037.96. We are above the Ichimoku Clouds for all time-frames. We seem to be in a trading zone of 2033.25 and 2107.75. Above the upper ledge is the life of contract high of 2117.75. Naturally if we break above 2107.75 we will see the market try to remove the high and print a new one. On the other side of the trade, if we close below 2033.25 we will open the door to1973.75. The most frequently traded price was 2083.90, but that appears to have occurred in the overnight session. For the day session the most frequently traded price was 2093 which also accounted for 11.5% of the day’s volume. The daily 1% by 3-box point and figure chart continues to have an upside target of 2371.33. The chart is positive. The 60 minute 0.1% by 3-box point and figure chart is very positive as well. So long as the positive mood continues things will be okay but there are divergences that are beginning to appear that are worrisome. Keep you stops tight always remain careful.
The NASDAQ 100 rallied 16.25 handles or 0.37% in the Friday session. The 5-period exponential moving average is 4379.02. The top of the flattening Bollinger Band is 4472.25 and the lower edge is seen at 4260.54. We do have a sign of exhaustion as well as a 13-count on this chart. All the indicators that we follow herein continue to point to higher levels although we are nearing overbought levels. Support should be seen at 4262 and resistance at 4441.74. The upward trending channel lines are 4441.25 and 4367. We are above the Ichimoku Clouds for all time-frames. The most frequently traded price in the Friday session was 439.60. The daily 1% by 3-box chart has a downside target of 3978.36. This chart is positive with the market trading above the internal downtrend line. The 60 minute 0.1% by 3-box point and figure chart tells a different story. There is an upside target of 4499.83 and this chart looks very positive. So far so good but that said, please keep your stops in place.
The Russell 2000 looks as though it could take out the life-of-contract high with just a little push to the upside. This index added 5.30 handles in the Friday session. We are above the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is 1256.83. The top of the Bollinger Band is 1270.11 and the lower edge is seen at 1228.36. The upward trending channel lines are 1277.725 and 1246.36. All the indicators that we follow herein continue to point higher although they seem to be losing some momentum. The most frequently traded price in the Friday session was 1261.80. The highest volume price was 1260.90 which accounted for 17.4% of the volume for all sessions. Remember this index will likely out-perform on the upside but will also out-perform on the downside. We do have the buffer of being small capitulation and likely there is much less effect from a strong US Dollar.
Crude Oil rallied 98 cents in the Friday session stay clearly in the defined trading range of 47.42 to 54.24. We are above the Ichimoku Clouds for the daily time-frame and below the clouds for both the weekly and monthly time-frames. The 5-period exponential moving average is 51.21. The top of the flattish Bollinger Bands is 54.16 and the lower edge is seen at 42.16. This market has been trying to form a base since the beginning of the year. We continue to believe that should we close above the upper range at 54.24, that we will cause a short-covering rally and likely see the market trade up to 58.98 and then 63.23. We could, of course, just stay in the range for a while longer. The 60 minute .02 by 3-box point and figure chart looks positive; however, has an internal downtrend line which could give it some trouble. The daily 1% by 3-box point and figure chart is also positive and does have an internal downtrend line. The most frequently traded prices in the Friday sessions were 50.68-50.75. On the daily Market Profile chart the range of crude is clear. We have been in a range for a while and sooner or later, this will break either up or down. We believe that although the 34-32 level is still alive and well, that it is likely that we will break to the upside. We suggest that you remain very nibble and remain open to either direction.
Gold rallied 13.70 in the Friday session in spite of the rally in the US Dollar. The uptrend line is 1197.59. The 5-period exponential moving average is 1202.98. The top of the Bollinger Band is 1225.69 and the lower edge is seen at 1150.22. There is a horizontal resistance line at 1224.00. All of the indicators that we follow herein are continuing to issue a buy-signal with plenty of room to the upside. The horizontal support line is 1177.50. We are below the Ichimoku Clouds for all time-frames. The 30 minute Market Profile chart has a tri-modal display. The most frequently traded price in the Friday session was 1194.40, although much of it was seen in the overnight session. The daily 1% by 3-box point and figure chart shows a downtrend line in place. The chart looks neither bullish nor bearish. The 60 minute 3-box point and figure chart has an upside target of 1229.60 and what is more important a penetration of the down trend line and an internal uptrend line. Although we like gold, we are not convinced that all is well and will proceed with caution.
The US Dollar Index rallied every day of last week after having spent the week before consolidating and pulling back. The Bollinger bands are still consolidating with the upper band at 100.02 and the lower band at 96.51. The RSI and our own indicator are issuing continued buy signals. The index closed on the 99.72 resistance line. Above this point resistance is seen next at 101.92 and at 106.72 above that. Resistance below lies at 97.14 and 95.84. The .05 x 3 30 minute Point and Figure Chart shows the index to be in a clear uptrend with 100.10 as the next upside target and with 98.20 projected as the downside target. Changing the time frame of data used and box size confirms these levels and adds 102 as a potential upside target. The US Dollar Index may back and fill but through the week it will likely gun for the 100.38 high and make its way to 102 over the next week or two.
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