November 9, 2014 with charts

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

Jordan Young, CMT

83 Highwood Terrace

Weehawken, New Jersey 07086

www.OptnQueen.com

November 9, 2014

The Option Queen Letter

By the Option Royals

According to John Lonski, chief capital markets economist for Moody’s, 45 weeks into 2014 and

euro-denominated bond issuance is up 15% while dollar-denominated bonds are off 0.7%. Kind

of tells you that the euro is expected to fall while the US Dollar is expected to continue its assent.

That said any wonder why the US trade deficit ballooned higher not only with cheap imports but

euro-denominated bonds? Smart corporations are borrowing money in euros to fund stock buy-

backs, repatriating some of their cash and also hedging their euro risk. Meanwhile the float of

tradable shares is declining. Isn’t financial engineering wonderful? Look what you can do

without people figuring out your plan!

Good news for the average American worker! Gas prices have been on a downswing giving the

average worker a tax break. How so, well if there is less money expended on fuel costs, that

extra cash flows right into the pockets of the workers giving them an extra bit of money and just

in time for the Christmas Season…..isn’t life grand?

European and foreign investment continues to flood our markets supporting some of the lift

recently seen. The inflow has been caused by a weak euro and strong US Dollar, supported by

the common knowledge that of all the bad economies, the USA seems to be the least bad of the

awful.

Rail traffic increase 4.4% for the month of October, and intermodal volume was the highest ever

in recorded history (Rail Time Indicators, November 7, 2014). Petroleum and its products were

up 20.7% over October of 2013. The rub here is as crude prices decline so will the production of

crude from shale and other enhanced methods of recovery thus affecting the transportation of

petroleum products. We have mentioned in the past, that the downdraft in crude oil is supported

by OPEC because they understand that the cost of drilling and oil recovery from shale etc. is

costly and it is not practical to increase production in this manner when the price of crude is

falling. OPEC is willing to take a hair-cut in the price of crude just to maintain its dominance.

As a matter of fact, shale conversions and other recovery means are so costly that at about $70

bucks a barrel for crude, they might not make a lot of sense. Buyers will return to imports if the

product isn’t available and that is why OPEC is a cheerleader for cheaper crude prices. Rail

traffic has been up reflecting the fact that the price of crude was high enough to provide a profit.

As crude prices drop, that profit disappears and guess what, rail traffic could feel the brunt of

that slow-down. Yes, the product will be transported by rail and barge for now but should a

pipeline pass through the new congress, further erosion to rail traffic may occur in the future.

For here, at least, crude has the power both to give and take away.

The S&P 500 retreated 2.25 or 0.11% in the Friday session leaving a doji-like candlestick on the

daily chart. There are signs of exhaustion in this market and although another life-of-contract

high was seen in this session, it seems more difficult to make upside progress and reminds of a

car stuck in the mud with its tires spinning. The other problem seen is that the volume has not

surged as this market inched its way higher, this is not a positive for the market. The stochastic

indicator, our own indicator and the RSI are all in overbought territory and all have issued a sell-

signal which, as you know, is a warning to look for a change in direction. The rally has been a

steep one and could resolve some of this issue by backing and filling rather than by a full scale

retreat. As we mentioned many times, the buy- the-dips crowd is back in force and it is likely

that any retreat will not be a grand affair. The 5-period exponential moving average is 2016.61.

The top of the Bollinger Band is 2068.07 and the lower edge is seen at 1831.22. Notice how

wide these bands have become! The most frequently traded number in the Friday session was

2028.60. The formation seen in the Friday session was an almost perfect bell-shaped curve. We

continue above the Ichimoku Clouds for the daily and weekly time-frames but are inside the

clouds for the monthly time-frame. The daily 1% by 3-box point and figure chart has an upside

target of 2371.33. There are no downside trend lines and all looks positive for this time-frame.

The 60 minute 0.1% by 30box chart has a slightly different picture. Here we cans see a

downside target of 1996.6 and an upside target of 2073.89. The chart looks as though the market

is consolidating its gains. We continue to suggest that trailing stops be kept tight and that should

the trade be elected that you keep the proceeds in cash until a better idea is found.

The NASDAQ 100 lost 0.29% in the Friday session shedding 12.00 handles or points. This

market seems to be coiling and going sideways. Yes, there was a high print for the year in the

session but no follow through. The stochastic indicator, our own indicator and the RSI are all

pointing to lower levels from overbought levels. The 5-period exponential moving average is

4144.76. The top of the expanding Bollinger Band is 4288.27 and the lower edge is seen at

3708.02. We are trading in a range and like the S&P 500 seem to be having difficulty with

progress to the upside. We are above the Ichimoku Clouds for all time-frames. The 30 minute

Market Profile chart is a bimodal curve. The most frequently traded price is 4165.59. The 60

minute 0.1% by 3-box chart has an upside target of 4271.93 and a downside target of 4055.57.

The chart looks as though the market is consolidating. There is an internal downside line but

many more upside lines on the chart. The daily 1% by 3-box chart is downright positive with no

downside target and no downtrend lines. The Market Profile chart is flat. The most frequently

traded price in the Friday session was 4165.59. This index looks as though it will crack before

the S&P 500 will. Keep your eye on the trade, don’t blink!

The Russell 2000 lost 2.20 handles or points in the Friday session. This market has been inside a

trading range since November 3. The 5-period exponential moving average is 1165.41. The top

of the Bollinger Band is 1200.73 and the lower edge can be found at 1042.01. The stochastic

indicator, our own indicator and the RSI continue in overbought territory. The up trending

channel lines are 1147.20 and 1182.92. The September high of 1182.60 and the July high of

1205.40 remain overhead as stiff resistance. We are above the Ichimoku Clouds for all time-

frames. The total volume for this index has been in decline for weeks. The most frequently

traded price in the Friday session was 1169.10 which accounted for 10% of the day’s volume.

The 110 by 3-box point and figure chart shows lots of consolidation at these levels. This index

has underperformed the other indices reviewed herein. Expect to see some tax strategies appear

in the coming weeks. We would expect to see oil stocks and precious metal stocks to lead the

charge in tax selling followed by the small caps. Therefore, we suggest that you take a cautious

stance regarding these issues and also remember that in January these issues generally out-

perform the large cap stocks.

Crude Oil rallied in the Friday session and we are getting buy-signals in this product. At this

time, naturally we are very skeptical of that reading. That said, the 0.9% by 3-box daily point

and figure chart does has some slight positives with an upside target of 85.12. All the indicators

that we follow herein are issuing a buy-signal. The Bollinger Bands are contracting and we do

expect to see some more volatility return to this market. Unfortunately for the bulls, the Volume

is not enough to turn our heads. The 5-period exponential moving average is 78.60. The top of

the Bollinger Band is 84.25 and the lower edge is seen at 77.25. Crude oil is demonstrating that

there could be increased demand for the product should the winter be more harsh than is

expected. Some of that seems to be in the recent support. Take a look at natural gas for more

upside momentum. At the moment, crude oil is forming a pennant with the downtrend and

uptrend lines meeting at 78.54 or so. The date for the meeting of lines is, November 11, 2014.

Ultimate support for crude oil is at 74.57 as seen on the monthly chart….scary below that level.

We are below the Ichimoku Clouds for all time-periods. This market is ripe for a rally, but until

we see the quality of that rally we will reserve our judgment.

Gold rallied in the Friday session and after printing a new low for the year, reversed its direction

and rallied putting in a key reversal day. Will this be more than a one-day-wonder… we are not

sure. It did look as though it began as a short covering exercise which inspired the trend

followers to jump on board. The 5-period exponential moving average is 1165.79. The top of the

Bollinger Band is 1281.92 and the lower edge is seen at 1140.20. The daily 0.9% by 3-box point

and figure chart continues to looks troublesome. We had a downside target of 991.28 and no

uptrend lines. The 0.2% 60 minute 3-box point and figure chart does have internal uptrend lines

and an old target of 1203.4. This chart does have a positive look to it. The most frequently

traded price in the Friday session was 1142.40. Actually 1142-1144 has been an important price

insomuch as it has been the most frequently traded price for the past three days. We still have a

good distance to move to the upside before any short will become nervous. As a matter of fact,

the downtrend line is at 1205.16. Even at that level, a short is likely to believe that the bounce is

nothing more than a “dead cat bounce (DCB),” no offense intended against cats. There also is a

horizontal line of resistance at 1183.30 which will be the first level that will annoy the shorts.

The metals have been terrible performers in this market and are ripe for end-of-year tax sales.

Expect to see some of that but also be aware that if the above reverenced levels are removed,

plenty of shorts will dog-pile into the trade and it could lift the trade much higher than you might

believe. Stay nibble and alert with this trade. A comment here about gold divided by platinum

ratio which we have always used as an indicator for economic expansion. Right now, it isn’t

really telling us that there will be anything more than very moderate expansion but should this

ratio move, it will be a leading indicator that expansion will expand. We tend to like platinum

especially when it approaches the price of gold. Good trade to keep your eye on but certainly not

for the faint of heart.

Platinum rallied in the Friday session adding 15.7 bucks, nothing compared to gold. The 5-

period exponential moving average is 1217.07. The top of the Bollinger Band is 1294.57 and the

lower edge is seen at 1204.86. The Bollinger Bands became narrow and are again beginning to

expand. This tells us that the volatility in this product is about to expand. This chart is very

choppy and gappy so please be careful if you decide to that this product.

Let those who are far smarter or far dumber get involved with the US Dollar index because for

the moment, I’m out of here… The Index closed the Friday session at 87.68, up again for the

week. As chaos reigns supreme around the world and the US looks increasingly beautiful when

hanging out with Europe and Asia in the bar. The 5-period exponential moving average is 87.53,

the 20-period simple moving average is 86.15 and the index is currently above both. The

Bollinger Bands continue to expand and the index has just pulled back within the upper limit.

On the upside immediate resistance can be seen at the 88.40 level followed by the 2008 high of

89.54, wow…. Don’t look down if you are afraid of heights. This index has gone very far, very

fast and support can be seen back at the 85 level followed by 84.32. The 30 minute .05 x 3 point

and figure chart has been achieving upside targets and has one remaining at 88.60, not far from

where we currently are. There are multiple internal trend lines and one counter trend internal

trend line has formed. The Market Profile chart shows us that the most frequently traded price

during the session was 88.175. The heaviest volume of 8.3% in the Friday session was at

87.926. This index is wild. Call us chicken but we would not go long this index and we certainly

wouldn’t go short!

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.