Archive for December, 2017

Sunday, December 10th, 2017

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CFTe, CMT, M.S. and Jordan Young, CMT
December 10, 2017

Bitcoin is dominating the news on a daily basis. People are wondering if they should buy bitcoin now. This smells a lot like the “Tech Bubble” of the beginning of this century. Remember that bubble lasted a very long time. Most of the new issues had little to offer except being a “tech” stock. Now we have many companies changing their names to include block chain or something to allude to participation in the bitcoin frenzy. Sound familiar? Looking back in time, bitcoin grew out from the “Financial Crisis” in 2008 which pushed the banking system to the brink of disaster. People became suspicious of banks and how they do business and thus when the Winklevoss brothers came up with bitcoin and the Gemini Trust, people naturally became interested. Not only the common people, but unsavory sorts who were trying to avoid governmental reporting of income, focused in on this new digital currency, bitcoin. Perhaps even groups trying to avoid government eyes on cash transfers to fund radical groups. There are a lot of groups trying to avoid the tax man and government eyes. Bitcoin fills the bill. Here, they may float their coins without “anti-money-laundering” eyes and restrictions. Now we will have futures contracts to trade which, by the way, will settle in cash not bitcoins. How will the governments, not only ours but other, watch the transfer of fund? Good question?

A few words regarding volatility. The VIX measures volatility of the S&P 500 by calculating the changes in the prices of the nearby options contract, with the nearby expiration. It does not calculate the options price changes in other products. For example, option volatility in the bio-techs has been high because these stocks have been very volatile. It seems different groups become volatile while others become less volatile in some sort of rotation. So saying that the market is not volatile as measured by the VIX is incorrect. The VIX only measures the volatility of the S&P 500 and nothing else. There are measures for other indices, ie. VXN to name one, which will measure their volatility and then there is the volatility of the individual issues. Generalities sometimes are deceptive.

The S&P 500 gained 12.25 handles (points) in the Friday session. All the indicators that we follow herein continue to issue a buy-signal. The rally on Friday closed near the top of the day’s range. The Bollinger Bands are expanding warning of increased volatility. The most frequently traded prices was 2646.60-2647.70. The highest volume occurred at 2651 where 11.7% of the volume was traded. The point and figure chart continues to look positive. The intraday chart shows the expected reaction, positive, to the “Jobs” report and then a digestion of that information with a move to the upside at 12:30 on low volume, a retreat then another lung to the upside printing a new intraday high near the close and run-off. Although the uptrend is steep, seasonality likely will win the battle and the market will likely drift higher into the close of the year.

The NASDAQ 100gained 20.75 handles (points) in the Friday session. All of the indicators that we follow herein continue to issue a buy-signal. The most frequently traded price was 6350.40 but the highest volume was seen at 6340.60 where 10% of the volume traded. It is interesting to see the reaction to the “Jobs” report on the chart. By 9:30am the market completed its rally for the day and the market drifted lower for the rest of the day-session on low volume. This chart is a lot different from that of the S&P 500. We are sure that the volatility for this index was much higher for the VXN than that of the VIX. The Bollinger Band are flattish which tells us nothing about the future volatility of this index. Although the point and figure chart shows a clear downtrend on the chart, this market looks to be consolidating.

The US Dollar Index gained 0.071 handles (points) in the Friday session. Most of the trades were to the downside although the candlestick is a tiny bodied green candlestick. We are in an area where we should expect to see some resistance. All of the indicators that we follow herein continue to point higher although the faster lines are curling over to the downside but without triggering an alert. The Bollinger Bands are beginning to contract a little but with not much narrowing. The most frequently traded price was 93.96. The expected jiggers in the index upon the release of the “Jobs” data resulting in a quick move up then a retreat. The high was printed at 8:30am and the low for the day at 9:00am. The volume left the market until 11:00am where one swift bolt of volume was seen, then drifting to the downside on not much volume. If the US Dollar can blast through 94.085, the existing shorts will fear the next rally to 95.07 and will cover their positions. Should that upside thrust fail to appear, then a retreat to 93.46 and 92.67 is quite possible. The candlestick seen in the Friday session is quite negative showing that the bulls could not hold on the resistance high of 94.085 and collapsed under the weight of the light volume selling. The only positive thing in the Friday trade was that the market closed just slightly higher than its open. This candlestick is ominous insomuch as it could be the beginning of an evening star formation.

Crude Oil gained 0.65 handles (points) in the Friday session. The product seems to be in a trading zone stuck in the mud between 54.79 and 57.92-59.05. Both the RSI and the stochastic indicator are issuing a buy-signal. Interesting insomuch as the Bollinger Bands are flat, dull, going nowhere fast. We remain inside the up trending channel lines of 59.643 and 55.112. The most frequently traded price was 57.35 to 57.30. The Market Profile chart seems to be indicating a next move to the upside. The intraday chart is a study in nothing a bulge on the data, a retreat on the open another try to make a high that failed at about 11am and then a retreat to almost a flatline. If this market rallies to 62.58, it will be the first time since 2015 and would be a tough resistance level to plow through. Time will tell.

Gold lost 3.9 handles (points) in the Friday trading session and has confirmed a break of its support zone. A doji candlestick was left on the chart which could warn of a change of direction. Both bulls and bears were evenly matched in that session leaving this transition type candlestick on the chart. Typically, it indicates a change of direction. The stochastic indicator and the RSI are about to issue a buy-signal but really haven’t done that yet. The most frequently traded prices were 1249.5 and 1250.50. Perhaps gold has lost its luster as a default currency feeling the competition from bitcoin….hum. Both the weekly and the monthly charts show that the recent break in price was a serious breach of support.

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Past performance is not necessarily indicative of future results.
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