Jeanette Schwarz Young, CFP®, CMT, M.S.
Jordan Young, CMT
83 Highwood Terrace
Weehawken, New Jersey 07086
November 2, 2014
The Option Queen Letter
By the Option Royals
Cheaper oil is a tax break for all but especially welcomed by the beleaguered middle wage earner. This break comes just in time for the all-important Christmas season. We suspect that this boost in cash-in-the pocket will be spent on holiday gifts. After all about 60% of consumer spending comes from the middle to lower end of the earners here in the US. Although the GDP, release this past Thursday October 30, 2014, showed that the consumer increased spending by 1.8% that does not reflect the good news from the recent reduction in the cost of oil. This good news will likely be an increase in consumer spending which will be seen in the next scheduled GDP release, that is so long as crude oil remains at this or lower levels.
Election Day here in the US is Tuesday. We do not expect to see any real reaction to this event. At best we will have continued gridlock in Washington, at the worst, continued gridlock in Washington. Perhaps the population likes this insomuch as these elected officials cannot do more harm when there is gridlock. When the voting populace is populated with those on government subsidies, the status quo continues as they vote with their benefits rather than the good of the nation. Today about 47% of the population pays no taxes…..thus the tax for these benefits are being paid by the hated "rich" people and industry.
The S&P 500 printed and closed at a life of contract high in the highly charged Halloween session. The end of the month portfolio rebalancing clearly was to the buy side leaving the bears to cower in the corners of the caves as they move in for their winter's hibernation. The ascent to the upside has been steep and at this point looks as though it could, within a few days, consolidate. Remember that the beginning of the month contributions will hit the tape on Monday. Tuesday is Election Day, clearly not having much of an effect on anything. The 5-period exponential moving average is 1982.79. The top of the Bollinger Band is 2019.06 and the lower edge is seen at 1836.42. The stochastic indicator, RSI and our own indicator all continue to point higher at overbought levels. As you probably remember, we can stay overbought for long periods of time so do not try to out-wait this condition. It was so nice of the Japanese to give our markets that additional boost in the Friday session. That boost just lower the cost of Japanese imports for those of us here in the US, although the Toyota's, Honda's etc. made here in the USA will not reflect the cost break seen in the decline of the Yen, because these vehicles are made in the USA. We are above the Ichimoku Clouds for all time-frames. The angle of assent on the daily chart is too steep to continue at this pace. We are concerned that the volume on this run to the upside has not been that fabulous and is about average for the S&P 500. The last spike in volume was seen on October 16, 2014. Since that time, there has been a somewhat steady decline in volume except for the Thursday and Friday sessions which looked like average volume, nothing special. You would think that with the index spiking higher, that the volume should have picked up. This tells us that the shorts were already out and this was a trend-following rally, probably algorithm traders glopping up the index like a dog in need of water on a hot day. The steep upward trending channel lines are 2034.12 and 1969.75. The most frequently traded price in the Friday session was 2008.42 which accounted for 17.2% of the day's volume. The heaviest volume, 19.2% was seen at 2009.79. As to the regular session on Friday the most frequently traded price in all sessions was 2007.36. The 60 minute 0.1% by 3-box point and figure chart has a downside target of 1980.70 and an internal downtrend line. The daily 1% by 3-box chart has an upside target of 2371.33. The daily chart looks very positive but needs to travel a bit higher to cement in the next upside move. Just think what this market would have done if both gold and crude oil had behaved better……lots higher we would say.
The NASDAQ 100 enjoyed a Halloween treat rallying 24 handles in the session closing at a high for the year. As with the S&P 500 the indicators are overbought yet continue to point to higher levels. The volume is nothing to write home about but was at least average. We have a nine count which generally indicates that within a few days, could be as many as five or six, that the market could retreat or going sideways. The 5-period exponential moving average is 4086.27. The top of the Bollinger Band is 4185.69 and the lower edge is seen at 3712.48. The very steep upward trending channel lines are 4259.41 and 4076.44. We are above the Ichimoku Clouds for all time-frames. We also note that the 5-period exponential moving average has been an excellent measure of a positive/negative market especially when it crosses above/below the moving average of the Bollinger Band. The 0.1% 60 minute 3-box point and figure chart has an upside target of 4221. We see an internal downtrend line as well an internal uptrend line that cross at the 4149 or so. We have a downside target of 4088.14. The 30 minute Market Profile chart shows that 4142.08 was the most frequently, by bracket, price traded. On the daily Market Profile chart, that number looks like a single print. The market is showing us that we need to keep a watchful eye on it. At this point, it could begin to feel some fatigue and could easily retreat. Remember all of the buyers who didn't get long on the last retreat will likely be waiting for a retreat to go long. Expect to see the buy-the-dips crowd return in force. Still, keep your stops tight and do not be afraid to take profits. Mutual funds have closed the books for the 2014 year, this is done each October. Tax selling will appear shortly and that should work to help the buyers who missed the rally get long, in other words we do not expect to see a vicious retreat at this time. The memory of this recent "V" reversal is emblazoned in the traders and investors heads, well for now it is.
The Russell 2000 rallied 15 handles or points in the Friday session. The 5-period exponential moving average is 1146.93. The top of the Bollinger Band is 1166.19 and the lower edge is seen at 1028.64. The steep up trending channel lines are 1127.60 and 1178.00. There is a horizontal resistance line at 1182.50 and another at the old high of 1205.40. The rally has been on average volume. The indicators currently remain positive although both the stochastic indicator and our own indicator appear to be flat and could cross to the downside in the next session. We are above the Ichimoku Clouds for all time-frames. When looking at the monthly chart, it looks as though we are in a box or trading zone. The most frequently traded number for the Friday session was 1168.50. This index may enjoy a rally as many of the multi-national large capitation indices feel pressured by their global sales given the strong US Dollar. This index, on the flip side, will likely be where much of the tax selling is found. Tread lightly!
Crude Oil lost 42 cents in the Friday session but remained above the low print seen on October 16, 2014 of 79.01. The volume has been steady and not remarkable. We have a point of inflection on November 17, 2014 at 80.16. The 5-period exponential moving average is 81.15. The top of the Bollinger Band is 87.89 and the lower edge is seen at 77.80. This market seems to be in a rectangle or trading pattern. The indicators that we follow herein all continue to point lower and are a little below the neutral level, although the stochastic indicator has been oversold for a while it has no upside bend to be found. The 0.9% by 3-box daily point and figure chart certainly isn't positive but does show this trading area with multiple internal downtrend lines. The .02% by 3-box 60 minute point and figure chart has an upside target of 81.59. We have an internal uptrend line and a firm downtrend line in place. This chart looks better than might have been expected given the softness in this market. We clearly are in congestion. The Market Profile chart tells us that the most frequently traded price was 80.88 for the Friday session. The daily Market Profile chart which is a weekly chart shows us that 81.36 was the most frequently traded price. It is interesting that this market closed in-between both numbers at 80.75. Also notable, the US Dollar rallied in the Friday session. We would stand aside for now.
Who wants to see an ugly chart? Look no further than the chart of gold which looks truly awful. The next level to the downside is 1079.60, below that, we see 931.50 but we are sure that will not make our pet gold bugs happy…..The only good news is that there was no spike in the volume for the monthly chart but for the daily chart, yikes, looks as though the bulls threw in the towel on this last leg down. The fast stochastic indicator on the daily futures is issuing a buy-signal, the RSI continues to point lower as does our own indicator. The 5-period exponential moving aveage is 1201.92. The top of the Bollinger Band is 1261.44 and the lower edge is seen at 1189.83. We closed far below the lower edge of the Bollinger Band which tells us either the bands will expand to accommodate this increased volatility or that the price will return back inside the bands. Gold seems to be telling us that there is no inflation and it is likely that deflation will be seen. Gold also reflects the belief that interest rates are likely to rise. That said these comments are in direct opposition insomuch as why would interest rates rise in a deflationary environment. Yes gold would hate either but it makes little sense. The strong US Dollar also exerts pressure on the price of gold. Thus you have three immediate causes attributing to the weakness in the precious metals. The 60 minute 0.2% point and figure chart has a downside target of 1013.41. The chart looks dreadful. The daily 0.9% by 3-box point and figure chart looks lousy as well with a downside target of 991.28. We could make a case for gold to defend the 1060-70 congestion area on this chart. The 30 minute Market Profile chart shows us that the most frequently traded number, (frequency in the number of brackets traded- 30 minute periods identified by a letter) is 1170.00 the highest volume was seen at1164.80 where about 16.3% of the day's volume was seen. Either gold finds support here or near this level or we will see another haircut in its price. Next level down is below 1100 and in the mid1000 area. The sellers will appear on any early rally, seeking a level to get out of this market. Have a parachute?
The US Dollar Index closed the Friday session at 87.06, breaking above the mid October highs. Resistance above is at 87.40 followed by 88.40. Although we would feel more confident had the index had it actually met the 87.40 level and/or closed above it, the RSI and stochastic indicators are issuing a continued buy-signals while other own indicator is on the verge of doing so. On the downside, 84.87 should act as support followed by 84.20. The 20-period simple moving average is 84.68, the 5-period exponential moving average is 86.30 and the index is above both. The index is currently above the upper Bollinger Band which is 86.63. The lower band is seen at 84.72. The 30 minute .10 x 3 point and figure chart continues to show multiple internal trend line along with a newly activated upside target of 87.60, coming from a quadruple top break out. While we don't know how much more upside there is for the index, betting against it might be equivalent to picking up pennies in front of a steam roller.
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