Option Queen Letter

US Dollar Index Daily chart, July 14, 2013 for the Option Queen Letter
US Dollar Index (Daily) chart, July 14, 2013

The US Dollar Index has been out of control, spending its weekly pay check at Bloomingdales, the jewelers and auctions in a fit of absolute manic elation, and on the other hand, and locking itself in a dark room full of despair, confined to an unproductive self-loathing stupor. You guessed it; the US Dollar Index is suffering from bipolar disorder. Perhaps a consultation with a mental health processional is warranted and the addition of Abilify to the daily routine will help to dampen some of these symptoms?

The other possible cause for this manic behavior could be the behavior of the Federal Reserve. One day they state that they are going to begin tapering and another day, they are not. Yes we buy no we don’t buy is driving this market into confusion. Then there is the school that believes that the Fed has done so much stimulating that they are at a point where they will not be able to tapper or discontinue feeding the liquidity dragon. Consider this, if the Fed were to retreat from their economic stimulation, what would our economic growth look like? Remember when pondering that question that our economic growth is paltry at best. The good news is that the rest of the globe seems to be in worse shape than we are in.

This coming week we will hear for the Federal Reserve Chairman as he testifies before our elected officials on the “Hill.” We expect to be embarrassed by some of the questions our elected representatives ask, but perhaps Chairman Bernanke will utter some clarifications as to his and the FOMCs intent for the future purchases. Perhaps he has a plan?

The US Dollar index closed the Friday session up for the day at 83.16 following a dramatic gap down the day before. We acknowledged trouble on the chart when the US Dollar Index rocketed to highs, not seen since 2010, and seemed to hit a wall of resistance. After the print of a bearish engulfing pattern in the Wednesday session, the index gapped down and has been hitting the 83.40 level, an area of resistance noted on the chart, denoted by the top of the March rounding top. The index has not been hitting this level with the sort of vehemence we would like to see in a market which is looking to regain its footing to the upside. The upper Bollinger Band is 85.23 and the lower band is 80.94 with both turning in from far outstretched areas, this indicates that volatility is abating. The 20-period simple moving average is 83.03, which we are slightly above, and the 5 -period exponential moving average is 82.45, which we are currently below. The RSI is starting to hook up as is our own indicator though; we are still not seeing a buy-signal.

The 60 minute .05 x 3 point and figure chart has unactivated upside and downside targets at 84.65 and 78.40 along with internal trend lines and counter trendlines. Though this is not giving a clear directional direction, it does confirm our sentiment on upside moves (taken from the daily chart). Should the index break above the 83.40 resistance level that has contained the gap, we will likely get stuck in the May consolidation zone. On the downside, the weekly chart shows strong support at the 81.75 level, further downside support is around 81.43; however, we would defer to the support taken from the daily chart at 81.38. While the index isn’t giving a strong directional opinion at the moment, it would seem it wants to float to the downside for the moment.

Of the past 14 trading sessions seen in the S&P 500, there was only one session seen where the market closed below its opening level. This is a strong market. We are beginning to see some cracks appear insomuch as our extremely overbought stochastic indicator has just seen the short line curl over toward the longer line, both beginning to lose momentum. Our own indicator has just given us a warning shot across the bow telling us that it is likely that we will see a stall, if not a retreat very shortly. As to the RSI, well it is overbought, 74.21 but is not pointing either to the up or downside, go figure! The Thomas DeMark Expert indicator is pointing lower. We do have a 9-count in this market and multiple signs of exhaustion. The 5-period exponential moving average is at 1655.17. The top of the Bollinger Band is 1675.94 and the lower edge is seen at 1564.40. The Bollinger Bands are becoming wider indicating that volatility continues to prevail. We are above the Ichimoku Clouds for all time frames. The S&P 500 seems to be in position to challenge the high of 1685.75 which was seen on May 22, 2013. The 1% by 3-box daily point and figure chart is very bullish. The 60 minute 0.075% by 3-box point and figure chart show us a similar picture which is still bullish but needs to break out to the upside here and now. The market profile 30 minute chart shows us that 14.3% of the volume occurred at 1670, that the upper tail is at1674, and the lower tail is seen at1666. The most trades occurred at 1668.50 but that was not the volume high-point. We can glean from the chart that 1664.50 will offer support on a retreat. Under the 1659.50 area we will likely return to 1646.50 and then 1644 which are areas of comfort for this market. The bottom line is this: don’t fight the market trend, it clearly isn’t down. That said, we expect to see the market back and fill and until or unless the market clearly falls out of bed, the direction likely will be higher, not lower.

The NASDAQ 100 has been trading higher and has printed a new higher high than was seen on May 22, 2013. Not only was closing high higher but the NASDAQ 100 was able to close at that higher level. On May 22, 2013, the NASDAQ 100 printed a current high for the index but suffered profit taking and close lower than its opening level for the day. It should be noted that the actual high was seen in March of 2000 at 4884.00. Our only concert with these indices is that the upward momentum has been so strong that it is not sustainable. So at the very best, we need to expect to see some backing and filling. We do have a 9-count on the chart. We are overbought as measured by the stochastic indicator, our own indicator and the RSI. Not one of these indicators is issuing a sell-signal. Our own indicator looks as though it might issue a sell single in the next session. The Thomas DeMark Expert indicator is flat at neutral. The 5-period exponential moving average is at 3019.37. The top of the Bollinger Band is at 3056.70 and the lower edge is seen at 2827.16. We are above the Ichimoku Clouds for all time-frames. 15.4% of the day’s volume occurred at 3057. We closed the session at the area the market profile chart indicated to be the most frequently traded…that is different from the highest volume. Above the days high, there is no resistance because we will be at a new high. Those who are short will be scared and will cover, if they haven’t covered as yet. On the other side of the trade, below 3048 we would like melt down to 3035.50. The chart of the NASDAQ 100 reminds us of the beginning of the tech bubble when the markets rallied with great momentum leaving charts that looked like poles. For traders, the market highs and lows are like a moth to a flame, if in sight, the market will likely go to test the either high or low. Once the market probes those areas, market if touched (MIT) orders will be elected. The market will burst above only to retreat/advance and test the level again. A good trade has been to contra trade those levels covering at the breakout/breakdown levels. Our experience has proven that the upside trade works better than the downside. The daily 1% by 3-box point and figure chart has multiple internal uptrend lines and looks strong. The 60 minute point and figure chart looks very strong.

The Russell 2000 made a life of contract high in the Friday session. We see signs of exhaustion on this chart. There is a 9-count on the chart. The 5-period exponential moving average is at 1021.13. The top of the Bollinger Band is at 1036.12 and the lower edge is seen at 9413.68. The stochastic indicator and our own indicator both are issuing a sell-signal. The stochastic indicator is overbought but that said it has been overbought for extended periods of time. We used to call it bullishly overbought! The RSI is at 80.05 and continues to point high. We are above the Ichimoku Clouds for all time-frames. So where can this index go? How about 1078.80? The upward trending channel lines are 1004.03 to 1037.93. The market profile chart shows us that at 1036.50 should offer some resistance but that above that level, there is no resistance. There is a gap on the chart between 1022 and 1024.70. Basically if the gap is filled, it is weakness in the market. There is very little volume at the upper end of this chart. That does not mean that there won’t be should we move higher but that the trade is skeptical of this level. The daily 1% by 3-box chart is very bullish as is the 60 minute 0.1% by 3-box point and figure chart.

Crude oil traded higher in the Friday session printing a higher low but a lower high on the chart. We are above the Ichimoku Clouds for all time-frames. We have hit the first target of 106.33 missing the prior high seen in April of 106.43. Next, should we continue higher is 107.3, 108.25 and then 110.55. Both the RSI and the stochastic indicator are overbought yet continue to point higher. The 5-period exponential moving average is at 104.79. The top of the Bollinger Band is at 107.35 and the lower edge is seen at 91.69. The chart looks like a pennant is forming. The market profile chart tells us 27.3% of the volume occurred at 105.25 and that the past three trading days have illustrated similar levels. Should the market trade lower and remove 103, 101.50, then the next stop will be 99.50 on its way back to 97.50. The 0.75% by 3-box point and figure daily chart captures the old high seen in 2008. We have no downtrend lines at this time and we do have an upside target of 109.94. On the 60 minute chart depending on the box size I see a downside target of 99.

Gold left a doji like candlestick on the chart as a result of the Friday trading session. We are below the Ichimoku Clouds for both the daily and the weekly time-frame and in the clouds for the monthly time-frame. The 5-period exponential moving average is at 1267.87. The top of the Bollinger Band is at 1364.49 and the lower edge is seen at 1178.23. The Bollinger Bands are beginning to contract which indicates that the volatility might just be abating for now. The uptrend line is at 1236.84, this indicates that the market must stay above that level to remain bullish. The downtrend line is at 1310.36 a level that must be removed for the bulls to take charge and scare at least some shorts. We have what looks like a “W” formation and that pattern gives us a target of 1390.50. Should the market rally, certainly it will be boosted by the shorts covering their positions. The market profile chart tells us that if this market can move above 1299, that it will move significantly higher. The 1% by 3-box daily point and figure chart has some internal downtrend lines and a major uptrend line. We are at a level where if we fall, below 1217, we will be in some trouble and below1206, more trouble with the1179.40 level the next level of support. Under those levels we see support at 1113.2. If we continue as we are going, there will be a point of inflection on July 23, 2013.

One of the Option Royals
Jeanette Schwarz Young, CFP®, CMT, M.S.
Jordan Young, CMT
83 Highwood Terrace
Weehawken, New Jersey 07086