Archive for February, 2016

Sunday, February 21st, 2016

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CMT, M.S. and Jordan Young, CMT
February 21, 2016

The paperless society.

Whenever a decision is made to go paperless, we are accepting electronic transmissions of our information and data as a substitute for their paper predecessors. How does that impact us? Well, we have witnessed an evolution in the medium with which we communicate and store information. In coming days there will be very little in the way of paper data and information, good, bad and ugly will be stored on a hard-drive, in the cloud or in some other electronic method. To disallow investigation by the FBI of an IPhone or other device would be akin to disallowing the FBI to investigate paper files. If you could imagine, this would be similar to arguing that speed limits and other traffic laws did not apply to automobiles around the turn of the century as they were written with horse and buggy in mind As our society adapts to changes in the world, brought on by advances in technology, so to must our laws. Can you imagine the problems seen with hand written notes vs. word documents? The same argument regarding privacy could be made in that instance. How could you possibly allow that invasion of our privacy yada yada…. How about smoke signals vs. written documents. The world of communications are an ever changing and dynamic medium. As to privacy, while we don’t object to the FBI reading our emails or any documents found on our IPhone or other products we carry when a warrant is in hand, we do note that the current controversy surrounding the San Bernardino shooter’s IPHONE is rather more complex then the headlines would imply. In this instance, the government has requested that Apple develop a “backdoor,” something that currently does not exist, making it possible to crack open an IPhone. The question of should Apple do this vs. should they HAVE to do this are very different. We have very strong opinions on any sort of compulsory labor.

The S&P chart declined in the Friday session which was an option’s expiration day. The volume was nothing exceptional. Speaking of volume, we did notice a volume peak in the S&P 500 mini future’s contract on January 20th and a lesser peak on February 11th. Both volume peaks occurred on a downdraft day that ended the short-term downtrend. Neither days had enough volume to indicate that the market washed out. Of further interest is the “W” like formation that we are seeing on the daily chart. Our one concern is that the low of February 11th was lower than the previous low of January 20, which kind of negates the pattern. That said, if the market can clear above 1940 and then 1946, we believe that a short covering rally could take the market to 1987.75 or so. The most frequently traded price was 1912 and the highest volume was seen at 1911. All the indicators that we follow herein are flattish and are truly not helping. They are all rolling over but have not given anything close to a signal. The Bollinger Bands continue to be contracted and have also leveled in their formation. The 60 minute 0.2% by 3-box point and figure chart is positive. The daily 1% by 3-box chart is much less positive with a recent downside target of 1530.57. As we approach March, remember that the contract will roll during the second week of March into the June contract. This tends to skew the market and promote volatility.

The NASDAQ 100 rallied 6.25 handles (points) in the Friday session. The chart shows that the Bollinger Bands contracted on February 4th and since that time have leveled off neither expanding nor contracting. The indicators that we follow herein are replicating the behavior seen with the Bollinger Bands. Volume spikes are seen on the down day January 20th but to a lessor level on February 8th and even less on February 11th. Since that time, volume has trailed off. We seem to be stair-stepping to the downside with down-thrusts followed by rallies. The downward trending channel lines are 4220.57 and 3828.18.. The most frequently traded price in the Friday session was 4161 and the highest volume was seen at 4160. The 1% by 3-box point and figure chart has a downside target of 3196.2 and is bumping up against the downtrend line. The RSI on that chart has turned positive; however, the Bollinger Bands are contracting. The 60 minute 0.2% by 3-box point and figure chart has a downside target of 3927.38 and has an RSI pointing lower. This index was the best performing index in the Friday session.

The Russell 2000 rallied 4.80 handles (points) in the Friday session. Both the stochastic indicator and the RSI are pointing higher at overbought levels. Our own indicator is still issuing a buy signal but is curling over to the downside. The volume for the day was on the light side and the volume spikes seen in both the S&P 500 and NASDAQ 100 are absent. The last volume spike was seen in December. The Bollinger Bands for this index are flattish. The down trending channel lines are 1014.237 and 927.575. The most frequently traded price was 1006.50-1005.75 but 12.6% of the day’s volume was traded at 1008. The weekly chart of the Russell 2000 is concerning and that said, both the stochastic indicator and the RSI are issuing a buy-signal for that time-frame. The 10 by 3-box point and figure chart is interesting in that we seem to have hit a wall of resistance at 1009.20. We continue to watch this index but are not ready to buy.

The US Dollar Index lost 0.355 in the Friday session. While that isn’t an awful change what is awful is the candlestick left on the chart from that session. We see a rejection of a higher high for the week with a close below all but the Monday session. The RSI has rolled over and is now pointing lower. The stochastic indicator is curling over and will likely issue a sell-signal within a session or two. Our own indicator will issue a sell-signal in the next session. The volume has fallen off the cliff to a low level. The Bollinger Bands are contracting from a very expanded level. The Market Profile chart shows the expanded trading range seen in the Friday session. The most frequently traded price was 96.75 and the area with the most volume was 96.625, where 7.5% of the volume was seen. The daily 0.5% by 3-box point and figure chart continues to look negative. The 60 minute 0.2% by 3-box point and figure chart is even more negative than is the daily point and figure chart. In defense of the US Dollar Index, the action in the 60 minute chart does show a removal of an internal downtrend line. Wait and see before taking any action.

Crude oil lost 1.05 in the Friday session and continued its stair step lower. The Bollinger Bands look as though they might be getting ready to expand again. They have been fairly flat of late. The stochastic indicator is curling over but without conviction and looks a lot like our own indicator. The RSI is issuing a sell-sign. The only good news about the Friday session is that the volume is becoming light. The lightest volume seen this week was in the Friday session. The highest volume and most frequently traded price was 29.10. Crude oil left a bimodal curve on its Market Profile chart. The daily 1% by 3-box point and figure chart has an upside target of 39.71. The price remains below the downtrend line. The 60 minute 0.5% by 3-box point and figure chart has a downside target of 28.27. We do not know if this market is bottoming and would not take a position until or unless the downtrend line at 31.16 was removed on a closing basis, and then is exceeded for at least two days.

Gold traded very narrowly in the Friday session leaving an inside day candlestick on the chart. The pattern we see is a cup-and-handle. The downward sloping channel lines are 1232.88 and 1177.38. Our own indicators is issuing a buy-signal but both the RSI and the stochastic indicator are issuing a sell-signal. This divergence is important to note as it tells you to investigate the price behavior of this product. The Bollinger Bands continue to expand. The daily 1% by 3-box point and figure chart has an upside target of 1794.71. The 60 minute 0.25% by 3-box point and figure chart has an upside target of 1314.26 and a newer downside target of 1192.31. The RSI is pointing higher. The spread between platinum and gold is becoming very wide. Gold is trading at 1228 and platinum is trading at 945.6.

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Past performance is not necessarily indicative of future results.
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