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

Jordan Young, CMT

83 Highwood Terrace

Weehawken, New Jersey 07086

www.OptnQueen.com

September 7, 2014

The Option Queen Letter

By the Option Royals

The market continues is trek higher even with, a not so stellar, “jobs report.” There is too much

sideline money waiting for a pull backs to jump on board, therefore any retreat will likely be

shallow. One of these days, the bounce will die like a beach ball that has been deflated. Until

that time, up up and away we go. The S&P 500 looks as though it is forming a rounding top

which could either launch a retreat or become a spring board for the next assault to the upper

stratosphere. So far, we have been correct in keeping our stops tight and behaving defensively.

The world is chaotic with hot spots all over. There will come a time when one of these hot spots

will become an erupting volcano. The good news is that here in the USA we are not involved on

our own soil.

The Dow Jones Transportation Index continues higher and printed an all-time high in the Friday

session. September 2014 AAR Rail Time Indicators report continues to show robust growth

especially in the transportation of crude products. This past week’s results showed the highest

volume since October of 2007. This new high in the transportation index supports the marginal

new high made in the Dow Jones Industrial Index in the Thursday session.

This week the financial markets will roll their futures contracts to the December expiry. That

event should help increase the volatility a bit as the September contracts are rolled into the

December contract. We note that there are less bears crawling around than usual, lots of people

have piled into the correction camp and a good amount of table pounding bulls hanging around.

Next week these indices expire along with their options. Usually we believe that the ring, or

electronic trade, is short but in this instance, we really cannot tell. As shorts cover and roll their

positions to the next expiry, an upward bulge usually accompanies the roll, but in this case who

knows.

The S&P 500 made a life of contract high in the Wednesday session. Although the Friday

session did close on a positive note, both the high and the low for the day were lower than the

previous two sessions. All the indicators, the daily, weekly and monthly, we follow herein

continue to be overbought. While that in itself is not a signal it does put us on guard for a pull-

back. The 5-period exponential moving average is 2001.76. The top of the Bollinger Band is

2028.36 and the lower edge is seen at 1933.99. The down trending channel lines are 2007.75

and 1988.25. We are above the Ichimoku Clouds for all time-frames. It is important to

remember that as the market prints a new high, there is no overhead resistance. There is really

nothing stopping the index from running higher. Overhead resistance is generally seen when

orders are resting overhead. These orders often times represent positions that were created

earlier and are being carried at a loss. The trade is a “get me out even trade.” Thus, these orders

are not present when a new high is printed. Although Friday’s volume was not impressive, it

was higher than the volume seen on Wednesday when the life of contract high was printed. For

this market to move aggressively higher, the volume will have to return. We are always

skeptical of market moves when not supported by increased volume. The Market Profile chart

shows us that there was light volume at the new high and the high print in the Friday session.

The 1% by 3-box point and figure chart continues to look very positive with a target of 2371.33.

The 60 minute 0.1% by 3-box chart continues to look very positive. Again we encourage the use

of tight trailing stops to protect profits.

Although the NASDAQ 100 rallied in the Friday session it was unable to print a new high for

the year. The new high for the year was seen in the Wednesday session. We are above the

Ichimoku Clouds for all time-frames. We are overbought for all time-frames. The 5-period

exponential moving average is 4080.45. The top of the Bollinger Band is 4149.89 and the lower

edge is seen at 3920.00. The downward trending channel lines are 4093.50 and 4041.00. The

daily 1% by 3-box chart continues to look very positive. The 60 minute 0.1% by 3-box chart

does have an upside target of 4104.51 and seems to be consolidating here. We see nothing

negative on these point and figure charts…so far. We are encouraged by the uptick in volume

seen in this index which was not seen in the S&P 500.

The Russell 2000 rallied in the Friday session. This index has been underperforming the other

indices that we follow herein. The indicators for this index are not overbought. The 5-period

exponential moving average is 1170.72. The top of the Bollinger Band is 1188.00 and the lower

edge is seen at 1132.24. The steep downward trending channel lines are 1175.65 and 1153.62.

This index needs to stay above 1157.91 a trendline drawn from early August. The indicators are

mixed. This index is underperforming the other financial indices. That said, should the

economy begin to expand more aggressively, this risk off index will outperform on the upside.

Unfortunately, we are not there at this time. So far, we believe the best action is in the

NASDAQ 100 and until we feel more comfortable about the economic expansion we will avoid

this index. We also have concerns regarding the Fed’s action of keeping interest rates too low

for too long and their meddling with the normal business cycle. We are in favor of hands off

policy unless, as in the economic crisis seen in 2008, it becomes necessary to stabilize markets.

Crude oil retreated in the Friday session as the US Dollar Index rallied. This is a normal

correlation insomuch as crude is traded in dollars. The uptrend line for crude oil is 92.88 and the

downtrend line is 95.68. The 5-period exponential moving average is 94.23. The top of the

Bollinger Band is 96.20 and the lower edge is seen at 92.37. All the indicators that we follow

herein are pointing to lower levels. It should be noted that the Bollinger Bands are becoming

narrow. This tells us that something is about to happen, maybe not right now but in the near

future. We are below the Ichimoku Clouds for all time-frames. Right now, this market is

contracting and beginning to coil. Should this coil continue, we would expect to see a point of

inflection by October 13th

give or take a day or two. Both the weekly and monthly charts show

this contraction. The 60 minute 0.1% by 3-box chart has an internal uptrend line and a

downtrend line. The upside target is 95.46. The daily 0.9% by 3-box point and figure chart does

show consolidation. There is an upside target of 102.74 and a downside target of 80.66. Crude

looks as though it is consolidating. The chart isn’t particularly negative or positive. Watch the

US dollar for clues regarding crude oil. Naturally it is always subject to world disruptions but

we believe the US dollar has the most influence on the price.

Gold actually rallied in the Friday session but unfortunately printed a lower high and lower low

than seen in the Thursday session keeping the trend down. The 5-period exponential moving

average is 1270.89. The top of the Bollinger Band is 13201.05 and the lower edge is seen at

1257.27. The downward trending channel lines are 1289.04 and 1245.01. The indicators are

mixed but more positive than negative. The 60 minute 0.2 by 3-box point and figure chart looks

lower and has a downside target of 1210.64. The daily 1% by 3-box point and figure chart has a

downside target of 1113.19 and an upside target of 1812.66. This is not a very positive chart and

looks as though gold is consolidating. We are below the Ichimoku Clouds for all time-frames.

At this time, we are neither positive on gold nor are we negative. We are in a wait and see mode.

Time will tell us which way to go.

Somewhere in the world sits a trader who shorted the dollar a month ago, rocking themselves

back in forth in the corner of their dimly lit office telling themselves “it’s going to be ok.” Well,

sadly for them, we can’t promise that, at least not for now. The Dollar Index surpassed our

projections for the week and made its way to 83.99 before closing the Friday session at 83.80.

The Bollinger Bands continue to expand with the upper band at 83.88 and the lower band at 81.

The 20-period simple moving average is 82.46, the 5-period exponential moving average is

83.52 and the index is currently above both. The RSI is currently going flat and our own

indicator is on the verge of issuing a sell signal. Above the next lines of resistance are 84.15 and

84.52 beyond that 83.52 and 83.21 should hold this market in place. These same resistance lines

are supported by the weekly chart which also shows strong support between 83.20 and 83.30.

The 30 minute .05 x 3 point and figure chart continues to be in an uptrend with multiple internal

uptrend lines having formed. The upside activated target of 84.15 is still on the chart and we now

have an unactivated downside target of 83.30. It is we have seen the bulk of the Dollar Index’s

upside move. Though it is likely that the index will continue on to 84.15 and possibly higher, the

index has gone too far too fast and will likely pull back to the 83.50 or 83.30 level. That said, we

would not speculate on this pull back. This index has been incredibly volatile as have been the

world events that have been acting as major drivers. If you are long, and we sure hope you are,

this may be a good time to take some profits off of the table.

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.