Archive for February, 2017

Sunday, February 26th, 2017

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CMT, M.S. and Jordan Young, CMT
February 26, 2017

Open Letter to President Trump

Dear President Trump,

We recognize our immigration system is and has been in dire need of repair for decades and would argue anyone stating otherwise must be blind. Our system is wrought with bureaucracy and high costs, making immigrating to this country a very difficult task. The mere fact that we are currently debating what to do with ILLEGAL aliens, that there is such uproar over enforcing laws already on the books, underscores the systems disrepair. Immigrants serve an important role in our country. Unfortunately, much of our immigration system is antiquated and has not evolved to address the changing nature of immigration,

From our perspective, the problem isn’t so much immigrants but rather the large number of tax dollars that go uncollected from both US workers as well as illegal immigrants. We have a bifurcated society made up of tax payers, and tax takers, the latter often times comprised of individuals compensated in cash and thus not paying taxes. Many of these people are US Citizens who hold social security numbers and who collect government benefits: welfare, Medicaid and food stamps. While illegal immigrants lack a social security number and cannot receive the benefits above, they also certainly do not pay tax. This is a large part of what is flawed with immigration. Beyond being intensely bureaucratic and expensive, the system has not grown to reflect the evolving nature of immigration, namely the prominence of temporary workers and ease of travel.

Clearly you see that there is another huge problem which is not being addressed. Our tax system is outdated and onerous. It seriously doesn’t work and is anything but fair to those of us who do pay taxes. There are ways to fix the problem with the personal tax system here in the USA. First of all, throw out the current personal tax system. Install a VAT system so all people who consume, who purchase food, clothes etc., pay taxes. On top of that, put in place a graduated flat tax for individuals making over $250,000, which graduates to higher levels as incomes graduate higher. All investment income should be carried as ordinary income for those in the over $250,000 income basis. For the rest of us, we would have no tax except for the VAT tax. Our reporting would be simplified and all people purchasing objects of any sort would be taxed. The use of cash vs. traceable transactions must also be monitored for large purchases. Sounds simple doesn’t it? Such a system would catch all illegal income and tax it! Who cares if immigrants enter the US, let them pay tax! Oh and by the way, all money sent out of the USA in the form of Money Grams, wires etc. should also be taxed!

The S&P 500 gained 1.75 handles (points) in the Friday session. Although the Bollinger Bands are expanding the indicators, stochastic indicator, RSI and our own indicator are basically flat-lining. Both the RSI (85.10) and the stochastic indicator (95.3) are at overbought levels. We understand that we can remain bullishly overbought for a longer period of time than you might believe, therefore, we recommend that you “go with the trend.” The Rate of Change (ROC) is losing momentum, it would be prudent to lighten up on some of your pound puppies (poorly trading stocks) and take some profits in stocks that are overly extended. If and when this market pulls back, it will find support at 2275 or so. The most frequently traded price was 2360 but the highest volume, 8.3% of the day’s volume, was seen at 2357.50. The point and figure chart remains extremely positive. The day session opened at 2352.25 then rallied to 2357 by 10:30 then went sideways hitting a high of 2360.25 by 11:10. Then the market went into a trading range light volume funk until 3:00 when the market began to bulge higher on decent volume hitting the day’s high at 3:50. It looked like position squaring at the end of the session with what smelled a lot like short covering.

The NASDAQ 100 gained 10.75 handles (points) in the Friday session. The stochastic indicator, at 87.8, is about to issue a buy-signal at overbought levels. The RSI at 77.46, is pointing higher. Only our own indicator is pointing lower. The Bollinger Bands continue to expand at a modest rate. In the Thursday session the NASDAQ 100 printed a new life-of-contract high and then promptly retreated printing a lower low for the day. Friday’s candlestick closed near the high of the session but had a long tail, which tells us that when the bears had control of the market, they fail to be able to hold that retreat, this is bullish. On the other side of the coin the market did make a lower high, which is bearish. The most frequently traded price was 5321.25 but the highest volume was seen at 5322.50 where 7.2% of the volume traded. The NASDAQ 100 followed the same script the S&P used for the day’s trades putting the petal to the metal during the last hour of trading closing near the highs of the session on decent volume. The point and figure chart is being to show some downside action, but nothing to bank on at this time.

The Russell 2000 retreated 1.30 handles (points) in the Friday session closing near where is began the session. The real body for this chart is extremely narrow and the candlestick has a long tail. This chart shows a lower high and a lower low. We are still trading in the trading range. All the indicators that we follow herein are pointing lower. The most frequently traded price was 1390.50. This index opened and rallied until11:10 then retreated rallied again until 12:30, again retreated and then rallied to print the day’s high at 4:10 on lousy volume. This was the weakest of the financial indices in the Friday session.

The US Dollar Index gain a paltry 0.077 handles (points) in the Friday session. The candlestick shows a lower high and a lower low. We see support at 100.40 and resistance at 101.75. Basically should this market trade on volume above the 101.75 number, it will likely revisit the 103.815 area. That said, should the market trade below the 100.40 area, it likely will retest the 99.110 area. The stochastic indicator is curling to the upside but has not issued a buy-signal. It appears that a signal could be seen in a day or two. The RSI is pointing higher but our own indicator is issuing a sell-signal…go figure! The most frequently traded price was 100.975. The morning high of 101.90 was printed at 9:50, the morning low of 100.84 was printed at12:20, the afternoon high of 101.15 was printed at 4:20. As to direction, use the five period exponential moving average as an indicator. If the trade is above it, stay long if it goes below that moving average go short. In a long run, that will keep you pretty safe.

Crude oil coiled and broke out to the upside but failed to have the volume to support that move. The market lost 0.43 handles (points) in the Friday session. The candlestick see was a lower high and a lower low. The Bollinger Bands remain fairly flat. The stochastic indicator and the RSI are issuing a sell-signal but our own indicator is issuing a buy-signal. We still are above the uptrend line and the upward trending channel lines are 53.75 and 55.39. The chart shows a range-bound market approaching the upper edge of the range. The high for the day of 54.51 was printed at 10:00 in the morning. From that level it was all downhill with support see at 53.96 on heavy volume at 2:10. From that point the volume picked up but did not move out of the range.

Gold rallied 6.60 handles (points) in the Friday session. Both the Thursday and Friday sessions finally broke out to the upside opening the door the the 1315 area. The stochastic indicator is curling over to the downside but both the RSI and the stochastic indicator are pointing higher as is our own indicator. Either gold is showing us that inflation is creeping into our market or that the US Dollar is in trouble. Not sure which yet. We do know that a strong US Dollar is deflationary unless trade sanctions are put on imports then we will be in an inflationary spiral with the FOMC pulling the trigger to stem inflation. We actually believe that although there may be some tweety noise about tariffs that we will back away from that insomuch as we will have tariffs on our products that we export. True enough that we do not export that much but clearly tariffs will hurt the economy.

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.
Copywrite 2017 The Option Royals