Lions, and tigers, and bears! Oh my!

1. Option Queen Letter
By the Option Royals
Jeanette Young, CFP®
, CMT, M.S.
4305 Pointe Gate Drive
Livingston, New Jersey 07039
www.OptnQueen.com
optnqueen@aol.com
July 31, 2016
All of the following quotes are from L. Frank Baum: The Wonderful Wizard of Oz which are
appropriate given the cyclonic party behavior seen by both parties moving towards the upcoming
November presidential elections here in the USA.
“Pay no attention to the man behind the curtain!” ….good quote for both the Republican and
Democratic conventions….ignore them sift through the facts and vote! On that basis, maybe
your vote doesn’t count anyway. Our message to the candidates is another quote; “Some people
without brains do an awful lot of talking, don’t you think?”
“Oh – You’re a very bad man!” (Dorothy)
“Oh, no my dear. I’m a very good man. I’m just a very bad Wizard.”
“My world, my world….How can such a good little girl like you destroy all of my beautiful
wickedness.” (Wicket Witch of the North)
Remember, August is a vacation month for much of Europe and other countries. Here in the
USA, we also slow down during summer vacation months. Take that into account when trading.
Volumes will likely be lighter than normal. This can and led to swift up and down movements.
Today, because of negative and artificially low interest rates, money is on a mission to find yield.
Therefore, that market continues in rally mode with very shallow retreats. The US Dollar is a
strong currency with little perceived sovereign risk. Our paltry interest rates are better than
negative rates, thus bond money flows to our shores. Currently, we have noticed that investors
are beginning to become interested in not only dividends but also growth.
Much of the financial press complains that money is not being invested at levels seen the in the
past. Exchange Traded Funds (ETF’s) and Exchange Traded Notes (ETN’s) have captured much
of the funds that were previously invested in single name issues. Thus the money is invested but
in a different product.

2. The English Pound has suffered a major devaluation. Brexit, will boost the sale of exports from
England because devaluation has made English products and services more competitive. As for
the English, so long as they don’t travel outside of England or purchase/invest their weak
currency overseas, they should be fine. The bubblicious London housing market has taken a
slashing. The apartments and houses aren’t cheaper for the English but for foreigners, they
might appear as a bargain. That said, without a robust financial economy who will rent and buy
the inventory of real-estate. Now that London will no longer be the heart of the European
Central Bank, lots of jobs will be lost. A great deal of movement will be seen as financial
companies many of which will move to Dublin Ireland, to enjoy the lower tax rate.
The S&P 500 rallied 6.25 handles (points) in the Friday session piercing and actually closing
above the horizontal resistance line at 2169.75 and printing a life-of-contract high. This line has
held the market for the past 12 or so trading days. The Bollinger Bands are narrowing which
shows us that the volatility is contracting. The 5-period exponential moving average is going
sideways which is another indication of a flat market. On the other hand, the distribution curve
seen on the Friday Market Profile chart is in line with an up market (3:2:1). The most frequently
traded price was 2168.50. There was a volume spike at 3:55 which clearly was attributable to end
of day trading. This was the fifth week higher for the S&P. We generally see a maximum of six
weeks in one direction on the weekly chart. That said, there have been occasions when the
market has rallied for seven and even several eight week rallies, but these are rare and usual.
Probability kicks in at about the fifth week increasing the probability that a downdraft is near.

5. The NASDAQ 100 printed a high for 2016 in the Friday session, but that was not life-of-contract
high. We have to go back to January of 2000 to find the life-of-contract high of 4884.00. The
high for 2015 was 4739.50. The candlestick left on the chart on Friday is a doji-like candlestick.
A doji generally indicates that the market was unable to tumble but at the same time was unable
to rally significantly. In other words, the bulls and bears were evenly matched. In this case, the
bulls had it by a nose. We see this sort of formation when the market is indecisive and likely to
change direction. This is a warning candlestick, not necessarily bearish but alerting you to pay
attention. The stochastic indicator has just issued a sell-signal. The RSI is flat at overbought
levels. Our own indicator is pointing higher but moving slowly. The most frequently traded
price was 4728. The curve is a normal curve on the Market Profile chart. The high for this
session was seen at noon after which the market drifted until about 3:00 when it moved up
closing at 4730.

9. The Russell 2000 gained 6.50 handles (points) in the Friday session revisiting a level seen in
August of 2015. The all-time high was seen on June 22, 2015 when the Russell 2000 printed
1292.30. Both the stochastic indicator and the RSI are pointing higher while our own indicator is
issuing a sell-signal. The stochastic indicator has been in overbought territory since July 17.
This does not mean that it cannot continue this way but just lets us know that the rally is a bit
long in the tooth. Friday’s session was an outside day. The index printed a new year’s high and
also printed a lower low than the previous session, in other words, the range expanded. The high
for the day was printed at high noon. From there, the market retreated to 1213.10 by 1:00 and
then resumed the rally into the close. The most frequently traded price was 1212.50 but the
heaviest volume was seen at 1217.00 where 8.9% of the day’s volume was traded. The 12 by 3-
box point and figure chart shows the consolidation and remains, somewhat positive.

13. With the news that the FOMC was floundering on a rate increase, the US Dollar Index cratered
1.206 handles (points) in the Friday session. This is actually good for the US economy because it
makes our exports more affordable. The support level of 95.33-95.37 held for now. The next
support level on this market is at 95.14 and then at 94.185. All the indicators that we follow
herein continue to issue a sell-signal. The downward velocity is too steep to continue at this pace
and we expect to see some backing and filling. The most frequently traded price was 95.475-
9550. In the overnight session 96.35 was the most frequently traded price. There is a clear
bimodal curve one for overnight and one for the day session. The highest volume of 8.3% of the
trades was seen in the day-session at 95.75. The low for the day was seen at 11:00 after which
the market rallied to 95.69 at 12:45 from there, the market retreated to 95.43 then rallied by to
95.51 at the close of the electronic session. The US Dollar can and probably move marginally
lower before it is set up for a rebound. Remember we have the “Jobs Data” this coming Friday
and this index will be sensitive to those results. We continue to believe that the FOMC will not
do anything prior to the election to avoid any political view of their actions so, we vote for
December as the next possible rate change month.

18. Crude oil actually rallied 0.24 in the Friday session but printed a lower high and a lower low for
the day. That, is definition of a down trending candlestick. The next level of support is 39.85.
All the indicators that we follow herein are issuing a buy-signal. The down trending channel
lines are at 44.56 and 40.60. We are below the five-period exponential moving average which is
at 42.07, which for us is bearish. We would not take a long position until the market is above the
five-period exponential moving average. Crude oil rallied on high volume to 11:15 after which,
the volume subsided and the market retreated to 41.08 by 12:30. From there, the market again
rallied with a high print for the day of 41.67 at 2:15, then declined into the close. It actually
looked like a short covering rally and position flattening into the close. The most frequently
traded price was 41.00.

21. Gold rallied 17.4 handles (points) in the Friday session. The chart looks as though gold is
making a rounding bottom. The next resistance level is 1355.4. Support must hold 1310.7 and
then 1306 or risk a quick trip to 1287.8. All the indicators that we follow herein are pointing
higher although our own indicator is curling over to the downside. The Bollinger bands are
flattish. The upward trending channel lines are 1319.82 and 1352.72. The most frequently
traded price was 1340. We are concerned about the lack of volume in this index.

25. 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.
Past performance is not necessarily indicative of future results.
Copywrite 2016 The Option Royals