April 10, 2016

Option Queen Letter By the Option Royals

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

4305 Pointe Gate Drive

Livingston, New Jersey 07039

www.OptnQueen.com

[email protected]

April 10, 2016, 2016

The new Fiduciary rule regarding the sales of investment products in retirement accounts puts a

restriction on investment advisors, cautioning them to only deliver products that are appropriate

for the client. This puts the onus on the compliance officer to make sure the brokers under his or

her watch comply. Another layer of regulation will be applied but little to nothing is being done

to safeguard the investors from the reaches of the insurance industry. This industry's huge lobby

in Washington safeguards its every move. These products, some of which can advertise that that

they are guaranteed, have had special permission to lull the public into feeling safe when, in fact,

they are no safer than mutual funds or ETFs. We remember in the mid 80’s when one of these

companies went belly up. Calling the holders of the annuities and explaining that they would

only get back 20 cents on each dollar invested in their safe and secure insurance policy was

certainly scary to observe. Time and time again we had heard from the investors that these were

insured product, sadly, not insured enough. The commissions on these products are the highest

in the industry and the commission trails continue until the relationship with the buyer ends.

As to the markets, we seem to be stair stepping higher so long as we don’t break the lows seen in

the Thursday session. There is confusion and bantering from the Fed as they try to keep the

markets calm. Unfortunately, they, the Fed, seem more concerned with market action than

monetary policy. This isn’t a good sign. We agree that the USA is the strongest of the

developed market economies but we also agree that the lion’s share of the upside has already

been seen in our markets. It is likely that commodities and emerging markets will bottom and

just might out-perform in the short term. Prudence is always advised and just remember that

these assets are still in a bottoming process and could stall.

The Rail Time Indicators reported that the March 2016 weekly average fell 14.2% to the lowest

levels seen since 1988. The blame was placed on greatly reduced shipments of coal. If you

remove coal, we still saw a reeducation in carloads but only by 1.2%. Coke, car parts and

waste/scrap were up 24.5%. The transportation of petroleum, both Canadian and US, was also

depressed. This tells us that there is still weakness in demand for many commodities that are

being transported.

Although the S&P 500 futures rallied in the Friday session it printed an inside day on the chart,

we neither took out the previous high nor the previous low. The indicators are diverging with the

RSI pointing higher and our own indicator pointing lower. The stochastic indicator looks as

though it could issue a buy in a session or two. The Bollinger Bands are contracting. The

market looks as though it is rolling over to the downside but might just be trading in a range

defined by horizontal lines at 2075, mid line at 2050 and lower line at 2007. The daily 1% by 3-

box point and figure chart, although positive, is in an area of congestion. The 60 minute 0.2% by

2-box point and figure chart has a downside target of 1983.09 and a current internal downtrend

line. This chart looks as though this market is rolling over. The most frequently traded price

was 2043 and the highest volume was seen at 2041.75. Respect the aforementioned horizontal

lines and remember that once the Bollinger Bands stop contracting that they will expand again

bringing increased volatility to this market.

Although the NASDAQ 100 declined 0.75 handles (points) in the Friday session, we have a doji-

like candle stick on the chart. The Bollinger Bands continue to contract while both the stochastic

indicator and our own indicator continue to point lower. The RSI is going sideways. Should

4441.50 fail to support the market, we will see 4365. On the upside, should we close above

4532, on a weekly basis, we will likely rally to 4695. The most frequently traded price was 4500

but the heaviest volume was seen at 4462. The daily 1% by 3-box point and figure chart has an

upside target of 4951. The 60 minute 0.2% by 3-box chart has a downside target of 4296.85 and

really needs to hold 4445. The S&P 500 and the NASDAQ 100 are moving together.

The Russell 2000 rallied 4.90 handles (points) in the Friday session and remained below the

downtrend line. The Bollinger Bands are contracting slightly. The indicators are showing some

confusion with the RSI pointing higher, our own indicator pointing lower and the stochastic

indicator trying to bend up to issue a buy-signal, although that signal is days away. The volume

is down. The down trending channel lines are 1103 and 1080. The most frequently traded price

was 1098 and the heaviest volume was seen at 1091.50 where 6.3% of the day’s volume was

traded. If this market can close above 1116.80 for two days, you will see a rally to 1150.

Should the market trade below 1059.50 you will see 1052.10 and below that, 1025.

Crude oil rallied 2.40 handles (points) in the Friday session. All the indicators that we follow

herein continue to issue a buy-signal. The volume is picking up, due to fear, short-covering or

boredom, we are not sure. The US Dollar weakness has helped crude. The fact is that with all

the attention on crude oil, it still remains stuck in a trading range with resistance at 41.90 and

support at 34.82 and 33.60. Until or unless this market breaks above or below those levels, we

will continue in our current trading range. The daily 1% by 3-box point and figure chart has an

upside target of 44.75. The 60 minute 1% by 3-box point and figure chart has an upside target of

43.87 and the price just broke above the downtrend line. The most frequently traded price in the

Friday session was 39.58 but the highest volume was seen at 39.28.

Gold rallied in the Friday session adding 3.3 handles (points). Gold has enjoyed the currency

wars and now is enjoying the US Dollar weakness. We still remain in a trading range between

1193-1206 on the downside and 1260.90, 1280.70 and 1287.8 on the upside. The Bollinger

Bands are contracting. The RSI has bent slightly to the downside and the stochastic indicator is

bending over to the downside but has not issued a sell-signal. Our own indicator continues to

issue a buy-signal. The volume is dropping which is not good for the bulls. The upward

trending channel lines are 1223.60 and 1245.76. The 60 minute 0.25% by 3-box point and

figure chart has an upside target of 1269.11. The 1% by 3-box point and figure chart has an

upside target of 1707.61. That said, there is still a downtrend line on the chart, halting

movement to the upside. The most frequently traded price was 1237.50. So long as gold

remains in its trading range, we will continue to treat it as range-bound. Just as an aside, the

platinum gold spread is huge and looks somewhat lopsided.

Following a week of total indecision, the US Dollar index closed the Friday session at 93.80 with

the day's session producing a strong thrust to the downside. Since the index's setting of a lower

high on January 16th, the dollar has been trending to the downside. Following the March 17th

break of the 95.64 support line, the index has been trending to the lower end of a trading range

that has been in effect since March of last year. Last week the index broke the 95.21 support

level and currently on course to hit 93.32. The Bollinger Bands are gently expanding with the

upper band at 96.78 and the lower band at 93.80. The 20 period simple moving average is 95.29,

the 5 period exponential moving average is 94.50 and the index is below both. The RSI continues

to point lower while our own indicator has not issued a signal. The 30 minute OHLC 0.1% x 3

point and figure chart continues to be in a down-trend with one countertrend internal trend line.

There continue to be activated downside targets at 93.48 and 90.54 with one unactivated

downside target at 92. On the upside, there is one inactivated target at 95.76. The dollar likes

trading ranges and looking at the charts, we can' help but notice how both the price and the

volatility of this instrument have become decidedly inflated in recent years

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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