Jeanette Schwarz Young, CFP®, CMT, M.S.

Jordan Young, CMT

83 Highwood Terrace

Weehawken, New Jersey 07086

www.OptnQueen.com

January 18, 2015

The Option Queen Letter

By the Option Royals

We are entering a very strange economic condition where most of the central banks in the globe,

except the US of course, are making extreme efforts to deflate their currencies and increase

liquidity in their markets by printing money. True, the US started this campaign and now has

ended it… well so far at least… The termination of QE is causing our currency to gain strength

in the global market and, by the way, killing our exports and competitive advantage. This in turn

will kill multinationals exports and expose currency risks that are not hedged. Then there is the

collapse in crude oil. While this had an immediate positive impact on the average consumers

spending power by lowering the price of gasoline, the lasting legacy may be the death of an

industry that helped move the US economy out of the depths of recessiion. Crude oil’s decline

has already created fallout in Texas, Louisiana and California, just to name three states feeling

the cutbacks in the oil industry due to the depressed price of crude. The poor souls who work in

the oil patch are losing their jobs and the associated industries that supply their needs are going

to shutter their exposure to that industry. Countless manufacturers of industrial equipment,

piping and a vast array of other supplies utilized by this industry to will feel the trickle down

effects of lower crude prices. We care…..a lot or need to start caring. Do not make light of this.

The result is, believe it or not, good for gold and bad for platinum, which today is cheaper than

gold. This is a message of recession not growth. As to interest rate hikes in the USA; some

members of the FOMC are talking their book by indicating that the FOMC will ratchet interest

rates higher by mid-year. Our question to those voting members of the FOMC is: with our

currency as strong as it is, can we afford to do that? Remember the lag in the data from the oil-

patch slow down hasn’t hit yet. It is also a fact that even with cheaper gasoline the average

income earner in the USA is still having trouble staying ahead of bills and costs associated with a

reasonable existence.

Differences in yields say US vs. German are huge but let us rethink the differences. The five

year German Bund yields -0.054% and the five year US Treasury yields 1.155%. Everybody

should be buying US Treasury’s and selling the Bund….except for one small detail….the

currency differential.

Here is the good news regarding the S&P 500 in the Friday session….it did not expand the range

to the downside and printed a higher low and a slightly higher high than was seen in the previous

session, the bad news is that the market retreated 28.75 handles (points) and closed the session

near the lows. We are inside the Ichimoku Clouds for the daily time-frame but remain above the

clouds for both the weekly and the monthly time-frames. The 5-period exponential moving

average is 2011.44. The top of the Bollinger Band is 2065.75 and the low was seen at 1979.07.

The Bollinger Bands have contracted and it looks as though we will get a violent move out of

that contraction. The market seems to be coiling getting narrower but staying within a trading

range established between December 16, 2014 and December 30, 2014. All the indicators that

we follow herein are issuing a continued sell-signal with more room to the downside. The most

frequently traded price in the Friday session was 2002.50 but the highest volume price was

2001.00 and that was achieved by only a slight margin. The daily 1% by 3-box point and figure

chart has a downside target of 1794.71. The chart looks as though this index is consolidating.

We have both internal upside and downside trendlines. The 60 minute 0.1% by 3-box chart is

more ominous and has a new downtrend line and a downside target of 1953.18. Clearly this

index has overhead supply which could cause some difficulty for the bulls. This is clearly shows

on the charts, no matter which way you look at them. (Supply can be defined as those who

bought the index at higher levels who are looking to “get even” on any resumption to the upside.)

Although the NASDAQ 100 closed down 42.75 in the Friday session there was a failed push to

the upside which left a higher low and a higher high on the chart. All the indicators that we

follow herein continue to point to lower levels. The Bollinger Bands are flattening. The 5-

period exponential moving average is 4177.14. The top of the Bollinger Band is 4284.66 and the

lower edge is seen at 4073.26. We are inside the Ichimoku Clouds for the daily time-frame but

remain above the clouds for both the weekly and the monthly time-frames. This market is in a

trading range of the outlier at 4038.25 and the actually support at 4066 and the resistance of

4286.25 and 4326 and the actual recent high seen in November of 4343.25. Unless we break

decisively above 4286.25 or below 4066, there seems to be little reason to expect to see a

breakout or breakdown. We could remain in this range for an extended time. The most

frequently traded price in the Friday session was 4188; however, the highest volume was seen at

4170. The daily 1% by 3-box point and figure chart shows us that this market is consolidating.

We have internal uptrend lines and the chart looks positive…..well so far. The 60 minute 0.1%

by 3-box tells a different story. The market violated the uptrend line and looks as though it could

push lower in the future.

Although the Russell 2000 is clearly in a downtrend, it stopped at 1160.70 on the downside

which happens to be an old horizontal line. The Russell 2000 made a lower low and a lower

high on the day and lost 27.10 handles (points) for the day. The stochastic indicator and the RSI

are both pointing lower. The 5-period exponential moving average is 1177.97. The top of the

Bollinger Band is 1203.24 and the lower edge is seen at 1148.89. Of all the financial indices that

we follow, this one looks the worst. That said, it should be noted that should the market turn

around and rally, this index will likely outperform the others on the upside. The most frequently

traded price was 1171.50 and the high volume price was 1168.50 accounting for 10.2% of the

day’s volume. Remember the Russell takes no prisoners each handle (point) lost or gained is

$100, which is double that of the S&P 500 so, tread carefully!

Crude oil rallied 3.32 in the Friday session. Was it an oversold bounce along with portfolio end

of month adjustments or something more serious? We believe that the end of the month and the

lack of follow through on the downside was the stimulus that caused this reaction. Remember

one day does not change a trend and we need at least two days of advances to believe this action

will be more than a “dead cat bounce.” The last two candlesticks on the daily chart are bullish.

On Thursday, we had a doji candlestick and a rejection of a new annual low and then on Friday a

very bullish candlestick expanding the range and closing the day near the highs of the day. The

5-period exponential moving average is 46.05. The top of the Bollinger Band is 51.78 and the

lower edge is seen at 43.22. The Bollinger Bands are contracting at the moment. The most

frequently traded price was 44.40 to 44.60. The market action left a bimodal Market Profile

curve for the day and has some thin prints between the two levels. These levels can be viewed as

fast action levels. The 32.40 level printed in 1988 still looms out there as a definite possible for

a crack to the downside. To find this level, we had to look at a quarterly continuation chart of

crude oil. We are below the Ichimoku Clouds for all time-frames under investigation. Here is a

good one, both the US Dollar Index and crude oil rallied in the Friday session…..that is not the

usual behavior unless we saw portfolios in adjustment and positions closed out in crude. The 60

minute 0.2% by 3-box point and figure chart has an upside target of 52.15. That would be

enough to scare the shorts out of their positions and likely propel the market higher. The daily

1% by 3-box point and figure chart is also positive. The upside target is 57.39. Something tells

us that it wasn’t a reversal of fortunes in crude. We remain skeptical until proven otherwise.

Gold rallied in the Friday session adding 27.80 dollars and closing at 1283.70. Again was this

end of month adjustments or something more serious? The candlestick left on the chart was

inside that printed in the Thursday session. Both the stochastic indicator and the RSI are

pointing higher. Our own indicator has not issued a buy-signal but could do so in the next

session or perhaps two. With central banks uniformly debasing their currencies by printing

money we understand the flight to gold as a currency. Technically, gold remains in a downtrend

with the down trendline at 1287.97. We need to see that number removed as well as the 1309

number which has capped the advance in gold. We are above the Ichimoku Clouds for the daily

time-frame but remain below the clouds for both the weekly and the monthly time-frames. The

5-period exponential moving average is 1279.71. The top of the Bollinger Band is 1326.71 and

the lower edge is seen at 1183.18. The most frequently traded price was 1261.0 but the heaviest

volume was seen at 1264 which accounted for 10% of the day’s volume. The 60 minute 0.2% 3-

box point and figure chart looks good. The 1% by 3-box daily point and figure chart looks pretty

good. We would rather be long than short gold, but to be happier, we need to see a two-day

close above the downtrend line.

After setting a new high the US Dollar index took the remainder of the week to back and fill,

closing the Friday session at 95.05. The 5-period exponential moving average is 94.84, the 20-

period simple moving average is 93.47 and the index is currently above both. The Bollinger

bands have been steady; the upper band is at 95.90 and the lower band is 91.31. Our own

indicator is currently pointing lower as is the RSI. Support continues to lie at 94.40 with 94 flat

acting as the safety net below. Above, the next upside target continues to be 97.36. The 30

minute .05 x 3 point and figure chart really shows how this index has consolidated in the past

week. There are currently two upside targets, 95.55 (which has been activated) and 96.20 (which

is not yet activated). There is one downside target of 93.65. All things being considered, the

index may consolidate a bit more, perhaps moving back towards 94 flat, but, in the end, will

likely continue its move to the upside.

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. You should carefully

consider whether trading is suitable for you in light of your circumstances, knowledge, and

financial resources. You may lose all or more of your initial investment.