Archive for October, 2017

Sunday, October 29th, 2017

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CMT, M.S. and Jordan Young, CMT
October 29, 2017

And the wall of worry continues as we plow into tax loss selling and portfolio rebalancing season. What tax loss selling? Okay so if you own biotech stocks you just might have some losses. The FAANG stocks are flying high so, pair off your loss positions with your gainers. The market continues to climb higher even with overly optimistic sentiment readings and persistent technical divergences. The art of making money in this market is based on doing the work needed to understand the message that the market is sending you. At the moment, the market is joyful, happy and moving higher.

Remember, all the tools given to you on your software, are tools that are reading information derived from the market. It is not analysis! You must do you own work, using trend lines and patterns, to discern the direction of the market. The stochastic indicator will only tell you if the market is overbought or oversold. That information is useful, but remember we can be bullishly overbought and bearishly oversold for long periods of time. The trend will tell you what you need to know about the direction of the market. We can also burn off some of the overbought or oversold readings by going sideways for a period of time. The use of trailing stops is extremely important in this sort of market. Trailing stops will keep you in a position until a violation of your limits occurs.

The S&P 500 gained 15.75 handles (points) in the Friday session printing a life-of-contract high. The Bollinger Bands are contracting and indicate to us that volatility is going to return. There is a horizontal support line at 2541.50 to 2535.75, which needs to hold. The 2541.50 level has been tested twice and survived the test with a rejection of that daily low. Our upside target for the S&P500 is about 2612 give or take a handful of points. We did not have a volume surge with the run to new highs. We have to watch the market to see if volume comes in to confirm the jubilant new highs, thank you FAANG stocks. The point and figure chart remains bullish. The most frequently traded price (including the overnight session) was 2566.85. The most frequently traded price for the day session was 2577.25 to 2577.90; however, the highest volume by far was seen at 2577.90 where 16.5% of the volume was traded. We see a tri-modal curve on the Market Profile chart, with the breakout to the upside early in the session with follow through late into the session. Looks like most of the trading for this session was to the upside. Looking at the 10 minute TradeFlow chart, we see the inflow of buyers early into the session until about noon. Then the market slowed down with two spikes to the high, not on heavy volume, then a slight retreat with volume into the close of the session. The uptrend is confirmed by the weekly and monthly charts. Unless or until something really bad happens, we will continue to the upside. There is nothing in the chart to tell us otherwise. Remember, black swans are not predictable and can occur at any time, therefore, trailing stops should be used.

The NASDAQ 100 gained a stellar 129.75 handles (points) in the Friday FAANG session. The Bollinger Bands are again beginning to expand which tells us that volatility will be returning. We are overbought measured by all the indicators that we follow herein. That said, all of the indicators have issued a renewed buy-signal. Our next upside high should be 6287.25 give or take a couple of points. Naturally, most of the day’s trading was to the upside. Clearly the NASDAQ 100 opened the day-session with buying which continued throughout the session. The most frequently traded price was 6212.50 where 8.6% of the volume was traded. The point and figure chart confirms this upsurge in the NASDAQ 100. The market rallied, at its opening, on heavy volume and continued in rally mode until about 12:30, when the volume dropped off. The market reignited itself and rallied into the close closing about 9 handles off the highs. All the indicators that we follow herein continue to issue a buy-signal albeit at somewhat overbought levels.

The US Dollar Index gained 0.216 handles (points) in the Friday session. The stochastic indicator has just issued a sell-signal, but the RSI and our own indicator remain solidly in the buy-signal column. The Bollinger Bands are expanding indicating that volatility is back in force. We pierced the horizontal resistance line then retreated from that level. We are solidly above the uptrend line which is at 93.25. The upsurge in this market is too steep and will need some backing and filling. Should the market move higher from here, 96 is our next resistance level. Remember also, that a strong US Dollar is not good for the US economy insomuch as it pushes the cost of our products higher which helps imports steal some of our market strength. We are pretty far away from any real problem at this time, but once we revisit the 100 to 101 level, our exports will shrink and imports will expand. The market opened up on a positive not but by 10:00am hit the high for the day and sold off on volume. A recovery was seen from that level but by 11:30am the end of the rally occurred and the market drifted downward for the rest of the session still closing positive on the day, but not by much. The medium-term downtrend line is at 96.03. If short, the trader would not worry at this point because we remain below the downtrend line. That said, should we find the strength to move above that line, we will see a surge of buyers appear first covering their shorts then going long the US Dollar Index.

Crude oil rallied 1.55 handles (points) in the Friday session. The market removed the resistance level and surged for most of the day-session. Both the stochastic indicator and the RSI are overbought but continue to issue a strong buy-signal. The market opened the day-session surging and never stopped for very long closing the day 0.01 off the highs of the day! Next upside resistance level is 55.38 on its way to 58.44. Support can be found at 5-/59 and 49/28. One of our rules is that we need to see a confirmation of this new level by having it close above 52.81 for two days. We would expect to see some backing and filling and perhaps a visit to the breakout level in the early 52 area.

Gold gained 5.7 handles (points) in the Friday trading session. The most frequently traded price for all session s was 1267.50 and 1271.50 for the day session. All the indicators that we follow herein are issuing a continued sell-signal at oversold levels. The Bollinger Bands are beginning to expand. The day’s volume was heavier than normal, which is bad news for the gold bulls. Gold needs to stay above 1260.50 or risk a visit to 1247.37, 1243.2, 1234.60 and lower. On the upside, there is significant resistance at 1303.8. Gold still is above the uptrend line seen on the weekly and the monthly chart. At this time, it looks as though gold is simply in a trading zone for now. There is no reason to be either long or short the metal at this time.

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