To find out what this coming week will bring, just look under the hood and read The Option Queen Letter!

1. Option Queen Letter
By the Option Royals
Jeanette Young, CFP®
, CFTe, CMT, M.S.
4305 Pointe Gate Drive
Livingston, New Jersey 07039
www.OptnQueen.com
optnqueen@aol.com
May 15, 2016
While we rarely speak of the Dow Jones Industrial Average as the indexes mere 30
stocks provide a limited view of the market, today might be a good day to do so. This
average, created by Charles Dow, the co-founder and editor of the Wall Street Journal,
is named after Mr. Dow and his business associate, Edward Jones. It was Dow’s goal to
construct an index of companies that would reflect the behavior of the USA’s industrial
sector and broader economy. Our analysis today shows that this index is in danger of
removing a support line which has been in tack since April 12 of this year. Should that
level of 17535.32 fail, the Dow Jones will fall to about 17200.00. The good news is
that the volume is not unusual.
What is more interesting is the fall in the Dow Jones Transportation Index. Last week
we spoke of the decline in the volume of commercial traffic on the rails. This index
broke a key support level at 7663.17 and tested another level at 7507.31. Charles Dow
believed, as we do, that in a strong economy the movement of goods from one place to
another should be robust. In other words, stuff produced needs to be delivered to those
who use. Thus, the Transportation Average should reflect this behavior by rallying if
the economy is expanding. It is also thought that if the transportation average does not
rally, then the economy is likely contracting. The bottom line is that a falling
Transportation Average tells us that the economy is punk. The weekly chart of this
index is even more disastrous than is the daily chart.
The Baker Hughes rig count dropped again. Last year the Baker Hughes rig count was
660 and today it is 318. Much of the petroleum products we use are transported by rail.
You can immediately see that this drop has negatively affected the transportation
average. Boone Pickens said, in a Bloomberg interview, that crude oil (WTI) must rise
above $60 a barrel for drilling operations to resume. We guess that is looking under the
hood alright!
Some experts are saying that the average wage earner is benefiting from the lower cost
of gasoline. While we agree that the lower cost is certainly helping, when you see the
price of port products rise 35.9% it is clear that savings is being eaten up by food and
housing, both of which are rising.

2. The sectors that were under pressure in the Friday session were the financials, basic
materials (except for Monsanto which had a take-over bid), healthcare (with the
exception of the biotech’s and generic drug companies), consumer cycles, technology,
transportations, utilities and energy. In other words, this was a broad based retreat.
The S&P 500 June futures contract retreated 16.25 handles (points) in the Friday
session. Both the stochastic indicator and the RSI continue to issue sell-signals. Our
own indicator is going sideways with an upside bias, still issuing a buy-signal. This
divergence suggests that we need to look more closely at the action of the index. The
volume was not impressive but the Bollinger Bands are beginning to expand and this
warns of increased volatility. So far, this index has not tested the horizontal support
line at 2030.25. It is useful to review the Heikin-Ashi charts insomuch as they clearly
show the direction and remove much of the noise seen in the other charts. What we see
is worrisome for the bulls. The very short downtrend line is at 2068.75.04, the longer
downtrend line is at 2077.05. The most frequently traded price was 2052.75. When
reviewing the weekly charts one is struck by the importance of the horizontal line at
2030.24. The level below that support line is 1992 and then 1967.25, ouch! All the
indicators on the weekly chart are pointing lower. Caution is warranted although we
believe that the market will bounce from these levels within a day or so.

4. The NASDAQ 100 retreated in the Friday session but made several attempts to go
positive during the session. Ultimately the index failed and closed down for the day.
All the indicators that we follow herein are issuing a sell-signal. It is interesting to see
that the 38.2% Fibonacci line has supported this index. Should this Fibonacci level fail
to support the market, 4219.87 will be the next stop, the 50% retracement line. The
weekly chart looks as though this index is making a stand here. That said, should it fail
at 4271, there isn’t much support until 4102. All the indicators that we follow herein
are negative with plenty of room to the downside. The most frequently traded price was
4320. As with the S&P 500 caution is warranted.

7. The Russell 2000 retreated a mere 4.50 handles (points) in the Friday session. All the
indicators that we follow herein continue to point lower with plenty of room to the
downside. This chart sort of look like a head-and-shoulders top. There isn’t a sell
signal as yet based on the possible pattern because the neckline hasn’t failed. The
Bollinger Bands are beginning to expand and that warns of increased volatility in the
not so distant future. The most frequently traded price was 1100.50 but 9% of the
volume was seen at 1100.00. The weekly chart has rolled over to the downside. The
downtrend line is 1124.53. All the indicators that we follow herein are pointing lower
with plenty of room to the downside. The 11 by 3-box point and figure chart tells us
that this market needs to stay above 1099. The chart itself looks negative.

10. The US Dollar index closed the Friday session at 94.61, up for the week. The 20 period simple
moving average is 94.02, the five period exponential moving average is 94.21 and the index is
above both. The Bollinger Bands are currently expanding ever so slightly; the upper band is
95.31 and the lower band at 92.73. All indicators that we follow are currently issuing clear and
continued buy signals. The 30 minute 0.1% x 3 point and figure chart shows the index to be in a
new uptrend with multiple internal up trend lines and two activated upside targets at 95.94.
Over the past two weeks, the charts of the US Dollar Index have told a very interesting story.
Keeping within a down trend channel started January/February 2016, the dollar index met the
93.32 support level two weeks ago, a level that has been in place since January 2015. Below
here, there is a fairly steep drop, with the next support levels at 89.41 and 88.40 below that. After
dipping below this line, the index rallied back to upper channel line, breaking above it on the
daily chart and hitting the top of it on the weekly chart. The index will likely rally to 95.64 and
from there, move on to 96.49. If the index breaks below 93.32, watch out below!

12. Crude oil retreated in the Friday session leaving what looks like a hangman on the
chart. Crude oil poked above the horizontal resistance line in the Thursday session but
never challenged that line in the Friday session. The indicators remain positive but are
losing momentum and are beginning to roll over. The most frequently traded price was
46. The weekly chart is very interesting and clearly shows that the horizontal line at
46.76 is containing this market. The next resistance level will be 50.89. Both the
stochastic indicator and the RSI, although over bought, are pointing higher. Our own
indicator has just issued a sell-signal. Above the 46 and certainly above 50, the shorts
will begin to panic and could propel this market higher as they cover their short
positions. This sort of behavior, unless accompanied by heavy volume, usually does
not last.

14. Gold gained 3.1 handles (points) in the Friday session. The down trending channel
lines are 1285.87 and 1253.73. The uptrend line is 1263.66. The stochastic indicator
continues to issue a sell-signal but it has curled up aggressively and likely will issue a
buy-signal within the next session. The RSI is pointing higher and our own indicator is
clearly pointing lower. That said, caution is warranted. The weekly chart shows us that
gold is backing and filling. Both the stochastic indicator and the RSI are issuing a clear
sell-signal. Our own indicator will issue a sell probably by the end of the week. The
most frequently traded price was 1272.50.

17. 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