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

Jordan Young, CMT

83 Highwood Terrace

Weehawken, New Jersey 07086

www.OptnQueen.com

January 11, 2015

The Option Queen Letter

By the Option Royals

The action of the S&P 500 futures contract reminds us of a rollercoaster, trudging higher gaining

altitude then whoosh, dropping like a stone. These waves of up and down are not uncommon in

the market place. As a pit trader, we learned that the downside momentum is generally far

greater than the upside momentum. We also learned that up moves take longer than the

downside washout trade. This market has provided a great example of this behavior. It seems as

though the buy-the-dips crowd jumps into the market after a retreat. The last two dips have

produced higher lows and much higher lows than were seen in October of 2014.

The jobs data on Friday would suggest that the average income earner is earning less money.

Clearly the drop in the price of crude oil and thus gasoline has helped the average wage earner

survive and has actually given workers some extra jingle in their pockets. We hear nasty rumors

of increased taxes on gasoline. Seriously does that make sense? The benefits of lower crude

have trickled down to those who need it most and now a new tax is being considered? We

certainly hope not! Aside from destroying all the newly freed cash in the pockets of consumers,

such a tax would create a long term policy change based on short term circumstances. It was only

a few months ago when crude oil was twice its current price. Commodity markets are a volatile

place. A swift return to $80 barrel crude would render such a tax a disaster. Crude oil’s impact

on consumer confidence and spending should send an eye-opening message to the FOMC

regarding their approach to stimulating the market and helping the average worker. The lesson

learned is that small cost reductions on necessities help stimulate the average worker to spend on

discretionary items and help the economy while zero interest rates do not flow down to the

average earner. FOMC are you listening?

2015 will usher in a new batch of taxes that will affect tax payers (those who pay tax) and those

who derive their income from passive investments. We agree, taxes on the Buffets of the world

need to be altered and believe that such changes just might begin to help level out that tax benefit

that was being enjoyed. Remember, Buffet admits to paying less income tax than does his

secretary. With the addition of this tax, it is possible that he might be paying more tax.

Unfortunately, a creative accountant might find a solution for that as well.

The S&P 500 closed down 24 handles (points) in the Friday session closing the day at the

downtrend line. We are still above the uptrend line drawn from the October low. The 5-period

exponential moving average is 2034.97. The top of the Bollinger Band is 2112.13 and the lower

edge is seen at 1967.56. Both the stochastic indicator and the RSI are pointing lower from about

the neutral area and our own indicator looks as though it could roll over in a few days also. We

are above the Ichimoku Clouds for all time-frames. Notable areas of support are 1984.25 and

1961. The uptrend line is 2015.45 and the downtrend line is 2053.75. We are using horizontal

lines to determine the support area. Remember, these areas can be violated but not for more than

two-days. The reason for this rule is that the first pierce below the horizontal support line

generally is met with reversal purchases. If these purchases are not seen by the second day, it

should be assumed that a true violation has occurred and you should adjust for that information.

Remember too that trend following black boxes will jump on the trade and could accelerate the

action. Many managers place stops just below the low, and buy stops above a notable high, to

protect positions. Once these orders are elected, markets tend to reverse. The most frequently

traded price in the Friday session was 2050.50-2052. The highest volume was seen at 2040

which accounted for 13.2% of the day’s volume. The daily 1% by 3-box point and figure chart

has an upside target of 2619.43, a bunch of internal uptrend lines and is a very positive chart.

The 60 minute 0.1%by 3-box point and figure chart has some internal downtrend lines which are

troubling.

The NASDAQ 100 retreated 33.50 handles (points) in the Friday session. The line is the sand

for this index is 4081.46-4076.55. Below that level, the door is open to the October low of 3684.

This market is currently above its uptrend line of 4153.87 and below the downtrend line of

4266.41. The 5-day exponential moving average is 4194.99. The top of the Bollinger Band is

4355.34 and the lower edge is seen at 4088.77. The stochastic indicator is rolling over to the

downside but has not issued a sell-signal. The RSI is pointing lower from neutral levels and our

own indicator is flattish not giving us a real direction. We are above the Ichimoku Clouds for all

time-frames. 4230-4231.50 are the most frequently traded prices, but the high volume price is

4212 where 10.2% of the day’s volume was seen. The daily 1% by 3-box point and figure chart

has a new downside target of 3710.69 and a previous high target of 5806.53. The 60 minute

0.1% by 3-box point and figure chart is friendlier although there are both internal up and

downtrend lines. Basically we are in “show me” mode which means we are waiting for the

market to tell us the direction it intends to take. Right now, we are neither bullish nor bearish

based on the chart action.

The Russell 2000 lost 12.90 handles (points) in the Friday session. The 5-period exponential

moving average is 1181.80. The top of the Bollinger Band is 1231.89 and the lower edge is seen

at 1132.63. Both the stochastic indicator and the RSI have rolled over at neutral and now are

pointing to lower levels. Our own indicator continues to point higher. The downside lines in the

sand are: 1147.60 and 1128.20. Below those levels, the door will be opened to the October low

of 1034.10. It is interesting to note, that the Russell 2000 ETF (IWM) has a bearish engulfing

candlestick. We are above the Ichimoku Clouds for all time-frames. The most frequently traded

price in the Friday session was 1190.00 – 1191.00; the heaviest volume was seen at 1184. If this

market fails to reverse to the upside and remove 1195.20, the horizontal line at 1147.50 will be

revisited.

Crude oil continued its drift lower in the Friday session, although it seems to be trying to find

some support at these levels. Both the stochastic indicator and the RSI are pointing lower. Our

own indicator has just issued a buy-signal. The Friday session had extremely high volume and

could signal that the remaining longs were getting out of the trade. The most frequently traded

price was 49.00; the heaviest volume was at 48.50. The action of crude oil’s action is inverse to

that of the US Dollar index. The daily 1% by 3-box point and figure chart looks awful and,

although it might be trying to stabilize, it does not look hopeful. There are many internal

downtrend lines on this chart. The 60 minute 0.2% by 3-box point and figure charts looks much

better than does the daily point and figure chart. On this chart, we actually have internal uptrend

lines and the action looks as though the market is trying to stabilize. Although we would like to

nibble on this one, we will wait to see how things “shake out.”

Gold rallied in the Friday session leaving a very large bullish candlestick on the chart. We need

to see a close above 1239 for us to feel more comfortable with this product. All the indicators

that we follow herein are pointing to higher levels. The chart action is positive but needs to see

some more follow through and a removal of the 1239 level. So long as 1167 is not removed, we

will give the yellow metal the benefit of the doubt to the upside. We also would like to point out

that gold has been in rally mode along with the US Dollar which tells us the rally in gold is not

based on the value of the currency but rather by demand for the product. We are above the

Ichimoku Clouds for the daily time-frame but remain below the clouds for both the weekly and

the monthly time-frames. The 5-period exponential moving average is 1212.17. The top of the

Bollinger Band is 1229.91 and the lower edge is seen at 1167.19. The uptrend line is at 1170.18.

There are several horizontal lines which should be respected. These lines are 1239, a close

above which will signal a possible aggressive move to the upside and 1204.20 on the downside

which would signal a return to the 1176 -1170 area. The most frequently traded price in the

Friday session was 1210 and the highest volume was seen at 1217.50 which had 26.8% of the

day’s volume. The daily 1% by 3-box point and figure chart has an old downside target of

939.95 and a newer upside target of 1358.30. We have an internal uptrend line and a downtrend

line. This chart looks as though we could find support at these levels. The 60 minute 0.2% by

3-box chart is friendly with an upside target of 1235.07. We like gold but need to see better

confirmation of its recent upside action.

The US Dollar Index set a new 10 year high this week. You heard right, the last time the Index

was at these levels, George W. Bush was just starting his second term, YouTube was in its first

year of existence and Saddam Hussein was being put on trial. The Index closed the week at

92.15, pulling back after breaking the high. The Bollinger Bands are currently pointing inward

with the lower band at 87.77 and the upper band at 92.87. The 5-period exponential moving

average is 91.98, the 20-period simple moving average is 90.32 and the index is above both. The

daily chart shows support at the 91.22 level with 90.67 below that. Both indicators that we

follow are currently issuing sell signals. At these levels the Index is now in no-man’s land and

we need to look at a monthly chart to find where overhead resistance lies (an uncommon

occurrence)! Here we can see the next point of resistance is 94.40, a ways away. The 30 minute

0.05 x 3 point and figure chart shows though the index is in an uptrend, an internal uptrend line

has been broken and a countertrend internal trendline has formed. We have an activated

downside target of 91.17. At this level, the index might pull back, very slightly, and may have

found its new home.

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.