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

Jordan Young, CMT

83 Highwood Terrace

Weehawken, New Jersey 07086

www.OptnQueen.com

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.

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.