Option Queen LetterBy the Option Royals

Jeanette Young, CFP®, CFTe, CMT, M.S. 4305 Pointe Gate Drive

Livingston, New Jersey 07039www.OptnQueen.comoptnqueen@aol.com

July 10, 2016

The votes are in and it is unanimous the insane asylums have released their inhabitants and they are on the loose. Shootings, riots, and craziness abounds. Brexit, Dallas, Louisiana and even Minnesota…..and yet, the stock market rallied on the robust “Jobs Report.” We believe that as the May “Jobs Report” was sked so was June report, remember the Verizon’s strike?

What we are faced with is a world where interest rates are plunging and investors are seeking yields where ever they can find them. Corporations are taking advantage of low rates and issuing gobs of debt. All this leads to a strong market environment until…..it fails. We are not saying that it will fail tomorrow but the retreat is on its way.

The US markets will continue to outperform most of the global markets. It isn’t that it is the poster child for an expanding economy but rather is the default trade. With investors desperate for income, the trade is the US equity market’s long-term dividend paying stocks. Yes, there is risk on that trade but the only other choices are; US government bonds with puny yields, corporate bonds with better yields and more risk, preferred securities with limited growth potential, cash with no growth potential and safe foreign bonds with negative yields. Where would you go? As a side note, gold has been supported by the concern with currencies. This is easily demonstrated by the reaction of the pound to the Brexit vote. Where would you go if you were really scared? To the US where a crazy Election season is upon us, the Euro zone with its problems, the emerging markets, etc.?

Given all these factors it might have been expected to see a market that backs and fills here in the US. That was not the case as the markets revived up its engine and returned to levels seen prior to the Brexit vote, after all, that action does not affect the US…..or does it? To answer that, remember that a strong US Dollar is bad for exports, good for deflation and bad for tourism into the USA. Outside of that, services and products that do not have import competition will remain strong here in the USA. Further, generic drugs, which account for 88% of the prescriptions filled here in the USA, should also remain strong. Yes, we need our infrastructure tended to and those companies should also thrive. Your doctor, accountant and attorney are not going out of business anytime soon so health care groups are a reasonable investment choice as are insurance companies.

This week is the beginning for quarterly earnings starting with Alcoa! Should be interesting. Meanwhile the jobs report, on the surface looked good until you looked beneath the surface. The economy here in the USA is just chugging along not particularly robust but enough to keep the average worker alive.

The S&P 500 rallied 28.75 handles (points) in the Friday session removing all of the losses seen as a result of the Brexit vote results. The index now stand in a clear position to remove the highs, 2134, seen on May of 2015. All the indicators that we follow herein continue to point higher and still have room to the upside. The only thing missing here is the volume which, was just average. As a side note, the volume seen in May of 2015 was less than normal also. This tells us that the shorts, if there are any, have not thrown in the towel as yet and we could see some volume spikes as we challenge the old high and likely as we remove that high. The very steep upward trending channel lines are 2083.75 and 2144.91. The indicators on the weekly chart continue to point higher at overbought levels. The Bollinger Bands, on the weekly chart, are contracting. The monthly chart clearly shows that we are range-bound with an upside breakout possible to 2169.75. The most frequently traded price was 2092.

The NASDAQ 100 gained 64.75 handles (points) in the Friday session removing all the losses seen after the Brexit results were released. All the indicators that we follow herein continue to point to the upside and are getting close to overbought conditions. The upward trending channel lines are 4406.25 and 4538.75. The most frequently traded price was 4449.50. Most of the day’s volume was seen at the release of the monthly “Jobs Data” then another surge near the close of the day’s trading. The recent high was seen in October of 2015, that high was 4548. The all-time high for this index was in January of 2000 when the NASDAQ 100 printer 4884. As you can see, we are not as close to an all-time high as is the S&P 500. The weekly chart shows that we have closed above the long-term downtrend line but remain below the medium-term downtrend line at 4517.00. All the indicators on the weekly chart continue to point higher. The Bollinger Bands for the weekly chart are contracting.

The Russell 2000, the poster child for the risk-off trade, rallied 25.50 handles (points) in the Friday session. The next area of resistance is 1178.30 and then 1190.30, which would be the high seen on June 8, 2016. The life of contract high is 1292.30 seen on the week of June 22, 2015. All the indicators on both the Russell 2000 daily and weekly charts are pointing higher. The most frequently traded price was 1173, with 14.7% of the day’s volume and 1171.50 with only 5.8% of the day’s volume. The 5 by 3-box point and figure chart does not look that great and is below the downtrend line. Should the market continue its run to the upside, this index will exaggerate the upside move but only when there is no fear in the market. Just remember as quickly as this index goes up, it can retreat with the same speed and is the riskiest of the indices that we follow herein.

The US Dollar Index lost 0.038 handles (points) in the Friday session leaving a spinning top formation on the chart. This candlestick is generally seen as a warning. Notice that the market actually rallied above the previous entire week then retreated taking out the low of the previous two trading days a closed the session almost where it had begun. Yes, much could be attributed to the “Job’s Data.” The first action was to the upside when the “Jobs Data” was released then a move to the downside. Basically the tail and wick were printed before the NY session opened and were the result of the “Jobs Data.” Still we have a very indecisive session with neither bull nor bear winning the competition. The indicators that we follow herein are giving us mixed signals which alerts us to be careful. The upside resistance is 96.87 and the short-term support is at 95.375. All time-frames show that we are stuck in a trading range. The most frequently traded price was 96.20 which was also where 10.1% of the day’s volume was traded. The point and figure chart is not bullish.

Crude oil lost 0.02 handles (points) on the Friday session leaving a doji candlestick on the chart. As you know, doji candlesticks represent a possible transition. It clearly shows that neither bull nor bear won this battle and it stands as a warning that this market could change directions. All the indicators that we follow herein are pointing lower and are approaching oversold levels. The downward sloping channel lines are 49.317 and 44.182. The short-term down trend line is 47.62, which is a level of resistance that the bulls must remove if, crude is to regain the upside. The high volume low for the day was seen at 10:20 after which the market scratched its way to the upside peaking on high volume at 2:25 when it also took a dive to the downside. The most frequently traded price was 45.25. When looking at the weekly chart, the retreat isn’t really that awful although both the stochastic indicator and the RSI are pointing lower. We believe that crude oil has support at 43.24 and at 41.41.

Gold rallied 5.3 handles (points) in the Friday session. Both the stochastic indicator and the RSI are overbought and pointing higher. Our own indicator is issuing a sell-signal. The long tailed candlestick left of the chart on Friday is bullish. The real body of the candlestick is larger than that seen on the previous day and although a new high was not seen, gold did close higher on the day. The weekly chart looks very positive and is setting up for a run to 1392.60. Both the stochastic indicator and the RSI are pointing higher but are at overbought levels. The most frequently traded price was 1357.50. Gold is our choice going into the chaos that the upcoming Presidential Election will bring with it. It will act as the safe currency for the globe. Will it last, probably not but should be a trade in there somewhere.

RiskTrading futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.Copywrite 2016 The Option Royals