Option Queen Letter By the Option Royals

Jeanette Young, CFP®, CFTe, CMT, M.S. and Jordan Young, CMT

4305 Pointe Gate Drive

Livingston, New Jersey 07039

www.OptnQueen.com

optnqueen@aol.com

September 11, 2016

Today is the 15th anniversary of the tragic events at the Twin Towers, the Pentagon and a

field in Pennsylvania. WE WILL NEVER FORGET and have learned not to be passive

observers, but rather to help when help is needed. That day changed the lives of not only

the victims of the terrorist attack but all Americans who learned we are vulnerable and are

at risk.

Brexit shopping bash!

Money has been flowing into the US markets for the juicy yields on our bonds. How long can

this last and when will see this migration of money stop? The flow of money will end soon

because unless the yields appreciate (go higher), the cost of hedging that transaction back into

the investing currency will negate the interest rate earned. That should slow down the flow of

money into the US markets, unless interest rates go higher.

The Bank of England devalued its currency by lowering their interest rates. The effect of doing

that is to deflate the value of the currency. Here in the USA the FOMC seems to be itching to

raise interest rates which, would make the US Dollar strong. A weak currency can be

inflationary while a strong currency can be viewed as deflationary. Why, well because a strong

currency can buy more stuff especially when buying from a weaker currency. For example

should we want to buy real-estate in London with our strong US Dollars, it is much cheaper

today with the pound at about 1.31 to the US Dollar than it was a couple of months ago when the

pound was 1.53 to the US Dollar. Your London hotel room will be cheaper for foreign visitors

and if you are from the USA and the tours will certainly be cheaper. English companies might

be so cheap as to become the target for a takeover. Imports from England will also become

cheap. Any wonder why tourism in England is now the hot destination.

Brexit put England on sale not only for tourists but also a prime target for mergers and

acquisitions of companies. If they were fairly valued before Brexit, they are downright cheap

now.

What does the weak pound gain, clearly tourism, shopping, everything is cheaper. Exports are

hot because they are now cheap and companies well they too are cheap. We should see some

aggressive takeovers in the near future. If you are English and live in England the world hasn’t

changed much. Your devalued pound still buys you the same stuff it bought before. Imports are

expensive and travel will likely be out of the question for a while.

As Americans we can stock up on those imports from England which, a couple of months ago

were too expensive. Everything is on sale in England……enjoy and shop on!

Regarding the indices, and other commodities. As these financial indices fall, margin calls go

out. Margin clerks will take matters into their own hands, if the call isn’t met and portfolios will

be sold out. In that sale, you can expect to see safe havens such as the US Dollar and gold

liquidated. The margin clerk cares not a whit about the portfolio’s balance or the strong vs. the

weak, they just want money to cover the call. They will generally sell those issues that will bring

in the most money. Remember also commodity calls must be answered the next day while stock

margin calls have three business days to be answered. That is because stocks have a three day

settlement while commodities only have to the next session. If the market continues to retreat in

the Monday session, the futures markets will feel the margin clerk’s knife quickly while the

equities markets have a bit longer to pray for a bounce.

The S&P 500 December futures contract lost 56.25 handles (points) closing the Friday session at

2121.25 just a tiny bit above the day’s low of 2119.75. The market stopped at the horizontal

support line blowing down below the upper horizontal support line at 2141.50 and filled in the

lightly traded area between 2141.50 and 2120.50 that we spoke about in last week’s letter. The

Bollinger Bands finally broke out from the tightly squeezed area seen last week. While it was

possible for the market to have blown to the upside, the seasonals and the roll from September to

December influenced the direction of trade. The volume on Friday spiked. The market began its

sell-off in earnest at about 6:00am EST. From there the decline drifted lower picking up steam

until about 2:15pm EST where it tried to stabilize for an hour then resumed the steep decline into

the close on heavier volume. All the indicators that we follow herein continue to point lower.

We might expect to see some support at 2104.75 but wouldn’t be surprised to see some work

between 2120.50 and 2141.50 where there were single prints and light trading. Market Profile

brings these areas into focus and tells us that these areas tend to have quick moves which also

leads into some backing and filling.

The NASDAQ 100 lost 127.60 handles (points) in the Friday session closing at 4668.50 just 3.50

handles above the day’s low. The Bollinger Band popped like a balloon losing air. All the

indicators that we follow herein are pointing lower. This market began its decline in the

overnight session. Once the day-session opened the decline continues initially on heavier

volume and then thinning out volume until the attempt at stabilization, between 2:00pm EST and

3:30pm EST, when the decline resumed on pretty heavy volume. So where is support? 4640

and 4584.50. We would expect to see some trading on upside bounces to 4749.50. If you use

Fibonacci retracement numbers, the first support will be at 4581 and then 4502. We believe that

support will come in before that at 4640.00. Remember issues with dividends will behave better

than those without a dividend.

The Russell 2000 lost 42.90 handles (points) in the Friday session closing at 1212.90 just 2.90

handles from the day’s low. All the indicators that we follow herein are pointing lower. The

Bollinger Bands never really contracted as much as the bands contracted on the S&P 500 and

they did not expand as much as those seen on the S&P 500. The first Fibonacci retracement

number is 1192.513. We see support at 1194.70. The high volume area was 1222.90 and then

at 1218.20. This index stalled as the others did at 2:00pm EST and then resumed the decline at

3:30pm EST into the close, actually printing the day’s low in the last 15 minutes of trade.

The US Dollar Index gained 0.284 in the Friday session closing at 95.335. Both the stochastic

indicator and the RSI are pointing higher, our own indicator is pointing lower. If the US Dollar

can close above 95.59 for two trading days, a buy-signal will be issued and we would expect the

action to take us to 96 and possibly 96.24. This index is stuck in a trading range at this time.

The most frequently traded price for the day session was 95.425 where 11.8% of the day’s

volume traded. 94.925 and 94.95 were the most frequently traded prices in the combined

evening and day sessions. This market printed a high of 95.58 at 10:00 and after that the market

declined finding support at 95.295, just slightly positive on the day. Listen to the FOMC

members chatting this week prior to their quiet period and see what effect that chatter has on the

US Dollar index. Very few expect to see the FOMC raise rates in September, but you never

know.

Crude oil retreated 1.91 in the Friday session closing the day at 45.71. We see crude oil trading

in a range from 48.75 to 43.00. That narrow range is supported by horizontal support lines. The

wider range is from 39.19 to 51.67. The stochastic indicator and the RSI are issuing a sell-signal

but our own indicator continues to point higher. The Bollinger Bands are contracting but are not

narrow at this time and further contraction is expected. Believe it or not, this market is

beginning to get boring. The rig count is rising telling us that producers believe that the price of

crude oil will rise or, at worst, remain range bound.

Gold declined 10.5 handles (points) in the Friday session closing at 1327.3, the low of the day.

That is also a horizontal line of support. All the indicators that we follow herein are issuing a

sell-signal. The volume in the Friday session declined. Gold has to close above 1349.47 to

reverse the previous three day decline. Although we like gold, we will wat to see if 1310.5 and

1302.1 support this market. Gold traded lower for most of the day-session with a rally at 10:05

which took the market from a low of 1330.3to a high of 1336.10 before it resumed its decline

into the close.

Risk

Trading 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.

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