US SPX 500 Futures (Daily)
Employment is improving, however; paychecks are not keeping up with the increased recurring monthly costs to survive. Sure we guess we could all move to Alaska and live off the land but do we really want to do that? To be clear, the high end of the economy is doing just fine, thank you. Dog groomers, doggie day-care, high-end retailers and luxury sellers are having no problems. It is when you drop down to the ordinary family that the problems perk up.
With the economy seems picking up slightly, jobs are appearing and we would expect to see the “Jobs” report reflect that information. Unfortunately, incomes are not expanding as fast as is the cost of living as measure in real life by real people not the government which neither eats nor pays utility bills. Electronics and clothing (so long as it isn’t designer anything) are dirt cheap, but a good burger, not so cheap anymore. It is interesting to note that the USA is becoming a cheap place to manufacture. The cost of labor in this country is low and that should help bring manufacturing back to our shores. Yes, we are not as cheap as some Asian countries but when you consider the cost of shipping and taxes we are now becoming competitive again. How long with that last? Who knows, our guess is that we have a bit of time before our labor costs increase enough to scare away the budding manufacturing.
The S&P 500 took out the previous high by fifty cents in the Friday low volume session. The volume on the futures contract hasn’t been this low since January. Yes, it was a pre-holiday session and low volume is to be expected. We are trading in a trading zone and have not broken out of the rectangle. The Bollinger Bands continue to stay narrow indicating that they will expand in the not too distant future, when volatility returns to this market. We can tell you with confidence that the volatility will return we just are not sure in which direction it will take us. For the moment, the trend is really sideways and congestive. As to the indicators, the stochastic is overbought but pointing higher, the RSI pointing higher near overbought levels, our own indicator continues to point higher with plenty of room to the upside and the DeMark Expert indicator higher. The 5-period exponential moving average is 1886.99. The top of the Bollinger Band is 1897.57 and the lower edge is seen at 1859.22. The Friday session pierced the upper band and closed almost at the high edge of the Bollinger Band. Looked like leftover short covering and adjustments prior to the three-day break from trading. We are above the Ichimoku Clouds for all time-frames. Technically, we are seeing higher lows and higher highs which is the definition of an uptrend. We can tell you from experience that something is going to give, not sure which way it will rumble but know it will happen. Fasten your seatbelt for a wild ride. The daily 1% by 3-box chart hasn’t changed much and shows us that the market is trying to push through to the upside. There is nothing on this chart that tells us to get out of town of or to be careful. The 60 minute 0.1% by 3-box chart gives us the same sort of information. Our one concern remains that neither the Russell 2000 nor the NASDAQ 100 joined the “new high” party. We do realize that AAPL rallied 1.12% in the Friday session and that this stock enjoys a rather hefty weighting in both the S&P 500 and the NASDAQ 100 but it alone was not enough to propel the NASDAQ 100 to meet its yearly high. Food for thought!
The NASDAQ 100 ended the Friday session with a gain of 0.76% for the day. The afternoon session was so slow that paint drying could have been more exciting. We do have signs of exhaustion in this market and we did close above the upper Bollinger Band. The Bollinger Bands for this index are expanding and we believe that volatility will return to this market. The 5-period exponential moving average is 3638.85. The top of the Bollinger Band is 3661.31 and the lower edge is seen at 3514.16. All of the indicators that we follow are pointing higher and all are at overbought levels, however; they are not curling over or showing any weakness or change in direction. We are above the Ichimoku Clouds for all time-frames. The point and figure 0.2% by 3-box chart has an upside target of 3676.78. The chart is very positive. The daily 1% by 3-box chart has both upside and downside targets. The upside target is 3978.36 and the downside target is 2922.41. Neither the 60 minute chart nor the daily chart has a downtrend line to worry about and both charts look positive.
The Russell 2000 enjoyed a solid rally in the Friday session closing above its downward pointing channel line. The 5-period exponential moving average is 1111.50. The upper edge of the Bollinger Band is 1133.50 and the lower edge is seen at 1088.64. We are below the Ichimoku Clouds for the daily time-frame but remain above the clouds for both the weekly and the monthly time-frames. The downward pointing channel lines are 1121.97 and 1069.39. The longer downward pointing trendlines are 1132.57 and 1183.18. Bottom line here is; unless the market closes in the Tuesday session above the downtrend line, the poke through breakout will be negated. Should this market continue higher, the next downtrend line should stop it at 1132.57.
Crude Oil continued its rally in the Friday session gaining another 0.58% on the day. The US Dollar Index rallied as well indicating that the rally in crude was not a fluke. All the indicators that we follow herein are pointing higher, albeit at overbought levels. The 5-period exponential moving average is 103.50. The top of the Bollinger Band is at 104.33 and the lower edge is seen at 98.29. It should be noted that the Bollinger Bands are becoming wider which indicates that volatility is returning to this market. We noticed that most of the volume in the Friday session was to the upside although there were many negative prints on light volume. Could it have been short-covering in front of the long holiday weekend, sure? The high printed in February of 105.22 stands on the chart as a challenge for the trade. Are we going to remove it? Good question. The daily 1% by 3-box point and figure chart has an upside target of 133.7. The 60 minute 0.2% by 3-box chart has an upside target of 108.34 and continues to point higher with no current downtrend lines in sight. The chart tells us to stay long but do keep your stops in place.
Gold retreated in the Friday session and that is the most exciting thing we can say about this market. The range is becoming more and more narrow. The Bollinger Bands are narrowing. We know from history that the longer that these narrow rectangular patterns continue the larger the breakout/down will be when it does occur. We are guessing that so long as this continues that there will be a resolution by June 5, 2014 and that the breakout/down will occur at 1292.60. If it is a breakout, we would expect to see 1381 or so, if it is a breakdown, 1188 or so. All of the indicators that we follow herein are stuck on sell at the neutral zone. The 5-period exponential moving average is 1293.60. The top of the Bollinger Band is 1307.65 and the lower edge is seen at 1283.14. We are below the Ichimoku Clouds for all time-frames. The 60 minute 0.5% by 3-box chart shows an upside target of 1355.58 and a downside target of 1104.88. The daily 1% by 3-box chart has an upside target of 1839.5 and a downside target of 1113.74. Remember whichever way this market breaks, don’t fight it and go with it. It will tell you where it wants to go, don’t try to tell it where you want it to go, it doesn’t care.
The US Dollar Index rallied for four of the five sessions this past week and closed above a short-term downtrend line. The 5-period exponential moving average is 80.235. The top of the Bollinger Band is 80.53 and the lower edge is seen at 79.18. We finally poked above the Ichimoku Cloud for the daily and monthly time-frames but remain below the clouds for the weekly time-frame. All the indicators that we follow herein continue to point high and are overbought. That said, we can remain overbought for longer than might be believed and this does not indicate that we will retreat, merely that we are extended. The 0.4% by 3-box point and figure chart has a downside target of 75.74. The market is stuck in a congestion area. The 60 minute 0.1% by 3-box chart has an upside target of 82.499. It would appear that the market is going to try to make a run to 80.57 or so. If it fails to do so, expect to return to the congestion area at around 80.07.
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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