April 30th, 2017

Option Queen Letter
By the Option Royals
Jeanette Young, CFP®, CMT, M.S. and Jordan Young, CMT
April 30, 2017

“Consumer spending accounts for about two-thirds of the economy.”
Lahart, Justin. April 29, 2017. Economy Needs Consumers to Shop Again. New York: The Wall Street Journal.
“Robots could take over 38% of U.S. jobs by the 2030s” according to a study by PwC

Here is our problem; if robots will overtake 38% of the U.S. jobs by some date in the future and consumer spending accounts for about two-thirds of the economy, how is the economy going to expand enough for consumer spending to help ease us out of the “Great Nothingness” of this expansion?

It would seem that adjusting taxes would help, but throwing out the entire tax system might be a better start to helping us move to robust expansion. We need the average income earner to spend money. For that we need to lower the taxes for the average worker in addition to making sure that everybody who earns money, both reported and not reported (off the books), pays his or her share of the tax burden. We can no longer live with a bifurcated tax system if we want to see our expansion in our economy. An example of a person making money and not reporting that income could be the painter, the house-keeper, the handy-man,, health care aid, etc. who are paid in cash and pay no Federal Income tax on earnings. Because no income is declared, they likely will be collecting welfare checks, housing assistance and qualify for Medicaid. We are cultivating anger in those of us who pay taxes. Something has to be done to address this inequity in our tax system. The suggestion that the tax code be collapsed into three brackets does not address this problem. Eventually there will be an uprising of anger based on frustration from the group most affected by this problem, the average income earner. Have we learned nothing from this past election? The public is tired of the status quo and wants change. Making changes in the tax code that would help the average income earner and would be a good start. There is no reason why Warren Buffet pays less income tax than his secretary. The suggestions on tax reform recently made do not address the hot button issues.

The S&P 500 June futures retreated 5.25 in the Friday session. It seems likely that the gap left on the chart at 2356 to 2365.25is a “Breakaway Gap.” Our first clue that we are wrong will be a close below 2365.25. The Bollinger Bands are expanding albeit at a rather slow pace. All the indicators that we follow herein are now pointing lower. The point and figure 25 by 3-box chart looks like two goal posts. Will the ball be kicked between the poles or will it fail? The high on the S&P 500 is a cat’s whisker away at 2401. We are just a sneeze away from removing that high and printing a new one. The Market Profile chart almost looks like a golf club with a longish shaft, created early in the session, with the bell shaped bulge later in the session. The most frequently traded price was 2380.50 to 2381. The highest volume was seen at 2380.25 where 9.3% of the day’s volume was traded.

The NASDAQ 100 lost 10 handles (points) in the Friday session and left a small bodied candlestick on the chart. Although the index was unable to match the previous day’s high, the range of the trade was very narrow when compared to the previous day’s range. The Bollinger Bands are expanding which clearly tells us that volatility is increasing. The stochastic indicator looks as though it might issue a sell signal in the Monday session but it really is a coin toss on that reading. The RSI is pointing lower and our own indicator is indecisive. When looking at the Market Profile chart, one is impressed with the long wick printed in the early part of the day’s trading. The most frequently traded price was 5579. The highest volume, 13.2% of the day’s trade, occurred at 5580. There is a gap on the chart from 5454.75, April 21 high to the low of April 24 of 5471. Gaps in the continuation chart of both the S&P 500 and NASDAQ 100 are not common occurrences and should be respected. Basic rules state that if the gap is the beginning of an upside move, it should not be violated. These gaps look like “Breakaway Gaps.” These gaps move the price away the congestions or current resistance/support area on the chart. In this case it moved the price above the resistance area.

The Russell 2000 lost 24 handles (points) in the Friday trading session. All the indicators that we follow herein are issuing a sell-signal. The action on the day brought the index very close to the rim of the gap on the chart. Should this index fail to stay above 1388 and step into the gap, we will likely see the gap filled within a few days. Remember as the trade steps into the gap it will likely not fill the gap immediately. The traders are just testing the waters before moving forward. The most frequently traded price was 1402.50.

The US Dollar Index lost 0.06 handles (points) in the Friday session. There is a gap on this chart from 99.56, a low printed on April 21 to a high of 99.24 printed on April 24. This could be a “Breakaway Gap” to the downside. Both the stochastic indicator and the RSI are pointing lower although our own indicator is pointing higher. The US Dollar Index is losing momentum at this time and looks as though we are rejecting the low print of 98.58. Should we drop below that print, it is likely that stops will be triggered and that we could drop to 98.

Crude oi advanced 0.22 handles (points) in the Friday session. The doji-like candlestick seen on the daily chart indicates that both bears and bulls were fairly matched and neither was able to make progress. Crude did make a higher high and a lower high in the session but one day does not make a trend. There is good support at 48.20 and more support at 47.58. The Bollinger Bands are beginning to expand again so we should expect to see some more volatility in coming days. The weekly chart shows us that we are in a trading range which began around mid-February. Although we are at the lower edge of that range there is nothing on the chart to indicate to us that we are going to move out of that range.

Gold rallied 3.6 handles (points) in the Friday session. The downtrend line is at 1273.80 and we need to see gold trade above that level for the gold bugs to be happy. The uptrend line is at 1262.76 and we need to see gold stay above that line to remain bullish. The lines meet at a point of inflection on May 17 at 1266. If gold remains within these lines, we will see explosive trading either to the up or downside. Should that occur, do not fight the trend, just go with it. The stochastic indicator will issue a buy-signal within a day or so, the RSI is already pointing higher; however, our own indicator is pointing lower. The volume is beginning to slow down and the Bollinger Bands are beginning to contract. The current line in the sand is at 1261. Below that line, the door is open to 1238.7.

1. (Lahart, 2017)

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