Jeanette Schwarz Young, CFP®, CMT, M.S.
Jordan Young, CMT
83 Highwood Terrace
Weehawken, New Jersey 07086
February 22, 2015
The Option Queen Letter
By the Option Royals
It is very disheartening to hear people with aspirations of leadership soft peddle their opinions on very serious issues to national security, in the name of censorship and polling numbers. Former NYC Mayor Rudy Giuliani delivered his very passionate and honest opinions in a February 13th speech regarding Islamic extremism. This address was reminiscent of famous speeches of times past such as Ronald Reagan's "a time for choosing" and Lyndon Johnson's "American Promise." Sadly, we were reminded that today's media, shaped by instant polling numbers, split second news and sentence long stories, such honesty and passion is, more often than not, a dangerous gamble. We were saddened to see several Presidential hopefuls meet the former Mayor's words with weak mealy mouthed statements, hoping to move on to the next less controversial topic as soon as humanly possible.. Not one of the Presidential hopefuls interviewed had a backbone. Their comments were, at best, wishy washy and without any value at all. This highlights a second problem now faced by our government. The lack of backbone among leaders forged through our instant gratification society not only has detrimental effects on domestic policy, but created a perception of weakness among some of the less democratic leaders on the world stage.
The market rejoiced in the Friday session feeling that the Greek tragedy would be resolved and hoping for the stabilization of the EU. The series of new highs printed in the S&P 500 this past week, were without increased volume, which, is not a "good thing."
Here is the down and dirty on the markets to date: the strong US dollar is killing our export business but the US risk free interest rates are considerably higher than that elsewhere and our currency is strong. Our economy will slow down because the multinationals will be unable to export as much as the used to, the oil industry is contracting and not expanding and simply put, people will be losing their jobs. Did Syria solve its problems, no? Is there peace in Iran and Iraq? Is Egypt in the clear? Are Greece, Spain, Italy, Portugal and Turkey all in the clear now? Is Putin standing down from the Ukraine? Is there a peace that we haven't heard about? No! The US looks safe and money is pouring into our markets. The sentiment indicators are wildly bullish….and now would be a good time to take some of your profits off the table and perhaps invest them in places which have more upside potential. Months ago we suggested the EU as a possible place. Be open to other places.
The S&P 500 rallied in the Friday session adding 12 handles (points) and printing a new life of contract high. The candlestick seen for that session had a wide range for that day. The close was near the high for the day and we have signs of exhaustion in this market. We are overbought as measured by the stochastic indicator and the RSI, but we continue to point to higher levels. Remember we can remain overbought for a long time. We have been overbought for most of February. Sadly, the volume is not confirming the action seen and we are concerned that there is not more volume. We are above the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is 2095.58. The top of the Bollinger Band is 2122.21 and the lower edge is seen at 1985.75. The most frequently traded price in the Friday session was 2094. The daily 1% by 3-box point and figure chart has multiple internal upside trendlines and an upside target of 2819.43. There is nothing negative about this chart. The 60 minute 0.1% by 3-box point and figure chart is also very positive. We continue to advise that you keep your trailing stops tight. We believe that so long as the market rallies that trend following systems will be in the market and that this rally can last a bit longer. We are prepared for retreats and also understand that those who missed the upswing in the market will take any retreat as an opportunity to dog-pile into the market.
The NASDAQ 100 gained 28 handles (points) in the Friday session completing an eight day rally. Unfortunately, this rally as well as the previous day's rally did not show heavy volume. We have signs of exhaustion in this market. As to our indicators, the stochastic indicator, our own indicator and the RSI continue to point higher albeit at overbought levels. The Thomas DeMark Expert indicator is pointing lower. We did see this index print a new high for the year in the Friday session. The most frequently traded price in the Friday session was 4412.80-4414.40. The 5-period exponential moving average is 4398.44. The top of the Bollinger Band is 4454.02 and the lower edge is seen at 4090.29. We can project a new high of 4615.25 based on the range shown on the daily chart. The 60 minute 0.1% by 3-box chart is extremely positive with nothing negative, save the lack of volume, to be of concern. The daily 1% by 3-box chart has an upside target of 4711.59, again, there is nothing negative on this chart. We are above the Ichimoku Clouds for all time-frames. Again as with the S&P 500 keep your trailing stops tight.
The Russell 2000 underperformed in the Friday session adding 1.10 on the day in a very long tailed doji-like candlestick. This session did print a life of contract high and printed a marginally high close on the day. The Friday session marked the ninth rally day in a row, which is unusual to see. The 5-period exponential moving average is 1224.44. The top of the Bollinger Band is 1240.24 and the lower edge is seen at 1163.75. The upward trending channel lines are 1213.70 and 1240.10. The stochastic indicator has just issued a sell-signal but the RSI continues to remain flattish. Our own indicator has issued a sell-signal. The most frequently traded price was 1226.40. The high volume price was 1225.60 which accounted for 7.1% of the day's volume. The Russell 2000 looks as though we might see some profit taking within a session or two. Keep your stops tight.
Crude oil seems to be in a trading range between 48.13 and 55.01. All of the indicators that we follow herein are issuing a sell-signal, but to be clear, they haven't worked well at all and trendlines have worked much better. The 5-period exponential moving average is 51.73. The top of the Bollinger Band is 55.86 and the lower edge is seen at 44.49. The Bollinger Bands are becoming narrow again indicating to us that another push, either to the downside or the upside will appear soon. The 60 minute 0.2% by 3-box chart shows a broken uptrend line and a very firm downtrend line, the chart does not look very positive. The daily 1% by 3-box chart has an internal uptrend line and a very firm downtrend line. The market looks as though it could be consolidating or in a trading range. Time will tell us which way this market will break. The most frequently traded price in the Friday session was 51.80. Until or unless this market breaks above the 55 area or below the 48 area, we will stand aside and wait for a direction. If you are a risk taker, it might be okay to try to use the range as sells and buys. We are less inclined to do this because we remember how violent the breakouts can become.
Gold needs to hold the 1197.20 level or the door will be opened to 1168.6, 1142.60 and 1131.90. The 5-period exponential moving average is 1211.41. The top of the Bollinger Band is 1309.70 and the lower edge is seen at 1187.50. The less steep down trending channel lines are 124367 and 1198.75. The steeper down trending channel lines are 1232.23 and 1188.90. The indicators are oversold and continue to issue a sell-signal. The chart looks awful. The daily 1% by 3-box point and figure chart looks as though this market is consolidating but continues to look negative. The 60 minute 0.2% by 3-box point and figure chart has a downside target of 1165.54 and lots of internal downtrend lines. There isn't anything positive about that chart. The most frequently traded price in the Friday session was 1208.00. We closed inside the Ichimoku Clouds for the daily time-frame and below the clouds for both the weekly and the monthly time-frames. Stand aside this market and wait for a clear breakdown or break to the upside. Right now, we favor the downside.
The US Dollar Index spent this past week consolidating, closing the Friday session at 94.39. The Bollinger Bands are currently contracting and the upper band is at 95.34 and the lower band is at 93.74. The 20-period simple moving average is 94.54, which the index is currently below and the 5-period simple moving average is 94.37, which the index is just above. The RSI has been making lower lows and continues to point lower while our own indicator is issuing a buy signal. Starting with the daily chart, we can see the index has formed a triangle and has an inflection point around March 15th. We are currently resting on the 94.40 trend line. Below this level we find 93.96 followed by 92.66. We continue to need to go out to the monthly chart to see the next level of resistance which is 97.38. The 30 minute 0.05 x 3 point and figure chart shows we have moved into a down trend and currently have an unactivated downside target at 93.70. There are two activated upside targets at 95.20 and 95.55. The index will likely continue to back and fill, possibly pulling back just slightly before making another drive to the upside.
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