Option Queen Letter By the Option Royals

Jeanette Young, CFP®, CFTe, CMT, M.S. and Jordan Young, CMT

4305 Pointe Gate Drive

Livingston, New Jersey 07039

www.OptnQueen.com

optnqueen@aol.com

September 4, 2016

Hurricane Hermine is ripping up the east coast of the United States, leaving power

outages in its wake. We look forward to a much needed break from Hillary and “The

Donald.” For the first time in what seems an eternity, both candidates will hopefully

take a back seat. This election season has been one of the dirtiest , nastiest, and

valueless seen in modern history. We must remind our readership that no matter who

wins, and unfortunately one of these two will win, what they promise will have about as

much chance of happening as palm trees growing in the dark cold permafrost of Barrow

Alaska next year.

We are in the last quarter of the year and you know what that means! Get ready for:: the

September sell-off, October crash-a-phobia, November Presidential Election, and

finally December tax selling season. While this doesn’t sound great for the bulls, much

of this is seasonal and as such will pass. . Money is flowing to the USA from abroad

because we actually have companies that pay decent dividends and bonds that pay

interest rather than charging the investor to park their money. Another piece of support

for the market is that baby boomers are retiring and cannot live on the paltry interest

rates seen on government bonds and are subsequently looking for dividend paying

equities as investment to pay their bills. The only rub is that equities move both up and

down and may or may not keep their value while bonds fluctuate in value but eventually

pay off at full value when due or called. Seniors have less time to recoup any losses

simply because the clock is running on their time horizon.

The S&P 500 broke out of its trading range on July 8th and after a sprint to 2141.50 has

been in a tight trading range from 2141.50 to 2191.25. The market rallied 12 handles

(points) in the Friday session. The Bollinger Bands have been in a contracted state

since August 8th and at this time are even tighter. We believe that this state of range

bound dull trading will continue until we start to see the Bollinger Bands begin to

expand. This is awful news for option seller insomuch as the premiums received for

sales of options are cheap. That said, these cheap options just might be good buys.

Both the stochastic indicator and the RSI are pointing to the upside with plenty of room

to move. Our own indicator is still issuing a sell-signal but the momentum is flat. The

most frequently traded price was 2178-2178.50-2179. When looking at the Market

Profile daily chart, which shows the actual trading for each day, you can clearly see the

congestion in the trading range. The market seems to be having trouble getting through

the upper resistance level and therefore it is possible that it will just jump above that

level. The less likely scenario is that we will retreat and fill in the area from 2141.50 to

2120.50 where little trading has occurred. The monthly chart looks bullish.

The NASDAQ 100 gained 21.25 handles (points) in the Friday session sti ll remaining in

a tight trading range. The Bollinger Bands are contracting, which began about two

weeks ago. As this index did not experience the Bollinger Band contraction seen in the

S&P 500, this change should be noted and watched. We are seeing volatility contract.

All the indicators that we follow herein are pointing to higher levels with plenty of

room to the upside. The most frequently traded price was 4798.75. The congestion can

clearly be seen on the daily Market Profile chart. The weekly chart looks as though the

market is forming a flag. This will have to play out and we are in the early stages of

that formation. We are in wait and see mode and until or unless the market give us a

good reason, we will sit and wait patiently.

The Russell 2000 rallied 13.20 handles (points) in the Friday session and looked like

the day’s winner, not necessary for points but for trying to push to the upside . We did

see this index make a marginal new high for the month and for the year. Both the

stochastic indicator and the RSI are pointing higher and are approaching over bought

conditions. Our own indicator is pointing lower. The Bollinger Bands are beginning to

expand from their contracted levels. The most frequently traded price was 1248.00

which was also where 10.3% of the volume traded. The overnight session saw 1237.50

as the most frequently traded price but on miniscule volume. The point and figure 12

by 3-box reversal indicates 1251.60 is an important resistance level and that the Russell

2000 continues to be in an uptrend. The index is not near the all-time high of 1292.30

and although it wouldn’t take much to achieve and surpass that number, we seem to

need a bit of a rest before an attempt can be made. We are entering into the last

quarter of the year and have quarterly expiration and roll-over in two weeks when the

September contract rolls to the December contract. This index has historically been

home to a lot of yearend tax selling and following from this has also been the best

upside mover in January, enjoying the January affect.

The US Dollar Index rallied 0.215 in the Friday session leaving a long tailed

candlestick on the chart. Both the stochastic indicator and the RSI are pointing high er

with room to the upside but our own indicator is pointing lower. Although this market

rallied a bit, the trend continues to be down with a lower high and a lower low. The

weekly chart is positive showing that the US Dollar index gained for the weekly. The

most frequently traded price was 95.825 but the highest volume was seen at 95.80

where 8% of the day’s volume traded. The monthly chart shows that the index is

coiling. The point and figure chart is positive but clearly shows a need to either remove

96 on the upside or otherwise move a bit lower. The 15 minute TTFlow chart shows

that volume entered the market with the release of the “Jobs Report” at 8:30am. By

11:15 the high for the day was printed then the volume and the action went to sleep for

the rest of the session. Traders clearly left their posts to get a jump on the holiday

weekend traffic.

Crude oil rallied 1.04 in the Friday session remaining above the low of 43 printed in the

Thursday session. Support for this product is at 41.10 and 39.19. Resistance is at

45.83, 46.26, 47.49, and 48.46-48.75. The RSI is giving us a buy-signal and the

stochastic indicator is curling to the upside and will likely give us a buy signal in the

next session. Our own indicator is also curling to the upside but is further away from a

buy-signal. The weekly chart shows a downside bias, but nothing scary, just more

range-bound trading with the cap at 51.67 and the bottom at 35.24 and then the low of

January-February of 26.05. Looking at the intraday charts of crude oil, it appears that

traders sold on the close, perhaps to be flat the three-day weekend or perhaps to be

short. We believe it was the former.

Gold rallied 11.30 in the Friday session touching the upper downtrend channel line. The upper

edge of the channel lines is 1330.64 and the lower line is at 1299.90, the middle line is 1315.83.

The recent decline in gold could continue to the 1253.70 level. Right now the lack of inflation

has put to bed the inflation hedge story. As to gold acting as a currency, the hysterics of Brexit

have passed; neither England nor the world fell apart. Thus, gold is now acting as a commodity.

The strength of the US Dollar keeps all commodities traded in dollars in check and they react to

changes in the dollar insomuch as nothing economically has really changed. We are in

stagnation, not really growing very fast but not exactly falling apart either. Gold will rally if

there is turmoil in the globe and if fear returns. For now, things are quiet on the hysterical front.

Gold enjoyed a strong rally in the Friday session but the weekly chart shows a lower weekly high

and low, not a good thing for the bulls. The weekly stochastic indicator and our own indicator

are both pointing lower while the RSI is pointing higher….divergence! The monthly chart

shows the importance of staying above 1302.1 as does the daily chart. All the indicators on the

daily chart are issuing a buy signal. We like gold as a hedge against something blowing up

somewhere.

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