US SPX 500 Futures

Option Queen Letter

There are two labor problems on the west coast, the Canadian Pacific Railway Engineer and the Dock Workers in California. At the this time in California, cargo vessels are anchored off shore, at last count 14 container ships sit in the harbor waiting to unload their cargo. The waiting time in the harbor is up to two weeks. The International Longshore and Warehouse Union and Pacific Maritime Association are on strike and is costing the economy about two billion dollars a day. The issue is so critical that Labor Secretary Tom Perez will meet with the parties to attempt to repair this dispute and strike. The results have been a slow-down in the delivery of goods and huge losses for the shipment of perishables. What is going to happen, will the shippers become annoyed enough to abandon the Long Beach and Los Angeles ports. The Union is fighting to increase hourly wages for “senior skilled workers” to $40.68 per hour. What do they earn now….$35.68 an hour.

This brings us naturally to the discussion regarding deflation. Commodities clearly are in a downdraft and have been under pressure for some time now. That said, food costs have been gradually inching higher, education is running higher, and health care-healthcare insurance is galloping forward, and the cost of housing is higher. If we begin to see labor cost increase, we will have some inflationary results. That said, the average worker is making less money today, that s/he earned say in 1970 when adjusting for inflation. How is that possible you ask? Well it is and it is sad that the regular tax paying earner is and continues to struggle. Wonder why the consumer is muted; look no further than the costs of healthcare, food, utilities, real-estate taxes, rent, education etc. We will admit that low end fashion is cheap as are some electronics but as we have pointed out many times in the past, computers and clothes are not edible, so far as we know.

The S&P 500 printed a life of contract high, 2095, in the Friday session closing the session with a very respectable 10.75 gain. This was the fourth day higher and was at the upper edge of the channel line of 2095.75. All of the indicators that we follow continue to point higher. The 5-period exponential moving average is 2075.31. The top of the expanding Bollinger Band is 2094.66 and the lower edge is 1985.23. We are slightly above the upper band and it is likely that we will either retreat back inside the band or that the band will expand to accommodate the increased volatility. We do have signs of exhaustion that said, we can move higher in that state. We need to see better volume to confirm this breakout. We are above the Ichimoku Clouds for all time-frames. The upward trending channel lines are 2095.75 and 2057.60. The most frequently traded price in the Friday session was 2087.94. That price was also the high volume area accounting for about 20% of the day’s volume. The 1% by 3-box daily point and figure chart continues to look bullish with an upside target of 2619.43. The 60 minute 0.1% by 3-box chart has a target of 2154.18 which looked extreme several weeks ago but today looks entirely possible. The wonder of point and figure charts is that they give us these clear indications of where the market is likely to go. Remember the old saying: “the trend is your friend,” but we continue to advise keeping your stops tight and using trailing stops for your positions.

The NASDAQ 100 rallied 35.25 handles (points) in the Friday session making a new high for the year and getting closer to the old highs left on the chart during the “tech bubble.” All of the indicators that we follow herein continue to point higher at overbought levels. Both our own indicator and the stochastic indicator are beginning to roll over but no signal is being issued. This market has rallied for the past four trading days and is beginning to have pole-like features. The volume, sadly, is not confirming the breakout to the upside. We need to see more volume on the upside. Currently the volume is about average for this index. The 5-period exponential moving average is 4319.63. The top of the Bollinger Band is 4360.86 and the lower edge is seen at 4095.90. We closed above the upper Bollinger Band and would expect to see the index either retreat back inside the band or see the band expand. We are above the Ichimoku Clouds for all time-frames. The most frequently traded prices were 4356-4360. 17.3% of the volume was seen at 4358.43. The 1% by 3-box daily point and figure chart is very positive with an upside target of 4711.59. The bullish 60 minute 0.1% by 3-box point and figure chart is also very bullish. As with the other indices we suggest that stops be tight and that a trailing stop be employed.

The Russell 2000 printed a new high, not by much, in Friday session. All the indicators that we follow herein continue to point high albeit at or near overbought levels. The 5-period exponential moving average is 1209.59. The top of the Bollinger Band is 1223.12 and the lower edge is seen at 1154.85. We are above the Ichimoku Clouds for all time-frames. The most frequently traded price in the Friday session was 1216.00 but the price with the highest volume was 1218.73 which accounted for 10.7% of the day’s volume. The 120 by 3-box point and figure chart continues to look very bullish. The only thing missing on all of these indices is volume. This index did not perform as well as the other indices that we follow herein. Keep your trailing stops tight and employ caution. No, this does not mean get out now and certainly does not suggest that you short this index. We are suggesting that you maintain a tight trailing stop on all positions.

Crude Oil rallied in the Friday session added to the gains seen the Thursday session. All the indicators that we follow herein are positive. The 5-period exponential moving average is 51.40. The top of the Bollinger Band is 54.10 and the lower edge is seen at 43.14. The upward trending channel lines are 49.08 and 56.06. We are below the Ichimoku Clouds for all time-frames. Until or unless this market can remove the downtrend line at 53.99 and then remove 56.06, the short will hold their ground and will not fear a rally. This market has been rallying as the US Dollar has retreated. We are not sure that this isn’t the cause of the rally and will remain skeptical until or unless the market removes the aforementioned levels. The 60 minute 0.2% by 3-box point and figure chart has an old target of 54.60. We have both internal downtrend and uptrend lines and look as though we will see a break, either up or down, within a few sessions. The 1% by 3-box daily point and figure chart has an old target of 82.1 and a slightly more recent target of 36.65. There is nothing positive about this chart except that it hasn’t tested the internal uptrend line below. We have multiple internal downtrend lines on this chart. The most frequently traded price in the Friday session was 52.65.

Gold rallied in the Friday session but for the bulls it represented a much muted reaction to the decline in the US Dollar. All the indicators that we follow herein are now issuing a buy-signal. The 5-period exponential moving average is 1230.24. The top of the expanding Bollinger Band is 1265.66 and the lower edge is seen at 1211.83. The downward trending channel lines are 1264.15 and 1212.31. We are above the Ichimoku Clouds for the daily time-frame but below the clouds for both the weekly and the monthly time-frames. The most frequently traded price in the Friday session was 1228.50. The 1% by 3-box daily chart is giving us mixed signals. Right now it needs to stay above the uptrend lines. The 60 minute 0.2% by 3-box chart is a little better than the daily chart but that is only slightly better. We continue to believe that this product will react to world events regarding the stability of the various currencies. Technically we are not convinced that the bottom has been seen although we would like to be a buyer, we will wait until we are above the various downtrend lines. As to taking a short position, we do not see the risk-reward in that position. Thus, we will stand aside on this market until it, the market, tells us where it will go.

The US Dollar index retreat in the last two trading session this past week. The action did very little on the downside and the index seems to be in a trading range of 95.85 and 93.38. All of the indicators that we follow herein are negative but losing momentum to the downside. The 5-period exponential moving average is 94.47. The top of the Bollinger Band is 95.80 and the lower edge is seen at 92.99. We are above the Ichimoku Clouds for all time-frames. The most frequently traded price for the Friday session was 94.20. The 0.3% by 3-box daily point and figure chart has an upside target of 102.01 and a more recent downside target of 90.49. The 60 minute 0.1% by 3-box chart continues to look as though the index is churning. The one observance is that there are far too many players short the Euro and too many bull in the US Dollar Index. This generally resolves back to equilibrium, the problem is that we know that it will happen, we just don’t know exactly when it will occur.

The Option Queen Letter

Jeanette Schwarz Young, CFP®, CMT, M.S.
Jordan Young, CMT
83 Highwood Terrace
Weehawken, New Jersey 07086

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3 Responses to Option Queen Letter

  1. pramod baviskar June 3, 2015 at 11:54 am #

    nice analysis and great tip

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