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

July 2, 2016

We hope you enjoyed the roller-coaster ride the market provided during the last two weeks. We

not only had the Brexit vote, but the end of the month adjustments and the left-over natural

adjustment that occurs right after a quarterly expiration of futures. Wahoo an option sellers

delight, the VIX pulled out of the doldrums into a brief state of excitement!

The soaring US Dollar has a very negative effect on the economic recovery here in the USA.

Although many proponents of a strong US Dollar believe that because the USA appears to have a

small dependence on overseas sales, that the impact of a strong currency will not impede our

economic growth. Think again, is our input on that statement. A strong US Dollar is

deflationary. Having said that, we remind our readers that even the Federal Reserve sees

deflation as troublesome. Think about the cheap goods flooding our market stealing market

share away from our home grown products. Then, there is the flood of money into our debt

markets seeking some interest on their deposits. That keeps our interest rates low, which for the

home-buyer, is good.

We also warn that this strong US Dollar will become somewhat weaker with the upcoming

election here in the states. Although the USA bonds offer some interest on bond, those making

those bonds just might encounter a little bit of instability in the US Dollar as the election nears.

Nothing like chaos but some currency risk.

Always remember that a strong US Dollar is bad for commodities traded in US Dollars. A weak

US Dollar helps commodities regain strength. That said, gold is an outlier because it acts as a

currency in times of trouble and we believe that with the upcoming US election that gold will

again glisten in the sun. It is easy to check if gold is rallying due to a rally in commodities or

because of some perceived sovereign risk. Just look at copper, platinum and silver for

conformation. Full analysis of the US Dollar index will follow after the analysis of the financial

indices.

The closest index to making a new high is the S&P 500, then the NASDAQ 100 is next and

following in last place in the Russell 2000. Clearly the larger capitalization stocks, view as safe,

are taking the lead. Here we can clearly see the risk-on risk-off trade in real time. The Russell

2000 has the honor of enjoying last place as the risk-off trade. That said, as this market rallies,

the trade will migrate to the Russell 2000 in an effort to capture growth. This index is also the

home to most of the tax selling candidates which will be sold before the end of the year.

The S&P 500 gained 6 handles (points) in the Friday session regaining much of what was lost in

the Brexit hysteria seen on the previous Friday and this past Monday’s session. So much for the

sell-off! We are again in a positon nearing the highs and, it would appear that it is likely that

after a couple days of digesting the gains seen this past week, that we will again make a run for

the recent highs and will likely take it out! The all-time highs are still a little bit away from the

first resistance level at 2119.75 but certainly close enough to be achieved. The high is 2132.75

which was printed in May of 2015. All of the indicators that we follow herein are pointing higher

and still have plenty of room to the upside. The day’s high was seen by 10:30 and then by 11:00

the volume trailed off until some volume return between 4:00 and 4:15. Remember, futures

trade until 4:15. Clearly the senior traders left by 11:00 for their holiday get-away leaving the

juniors on the desk who adjusted their position in the last 15 minutes of the Friday session. The

most frequently traded price was 2086. The day session’s most frequently traded price was

2094.

The NASDAQ 100 rallied 27.25 handles (points) in the Friday session taking back the lion’s

share of the loss seen from the Brexit surprise. All the indicators that we follow herein continue

to point higher with room to the upside. The Bollinger Bands seem to beginning to contract

which should lead to some backing and filling. The downtrend line is at 4455.42. The current

spring-back rally is too steep to continue at this pace and likely will need to digest some of the

erratic behavior seen since the Brexit vote. The monthly chart looks as though it is coiling.

Very interesting! We do not know how much validity a coil would have on a monthly chart.

Just illustrates that this market has been stuck in a range since November of 2014. The quarterly

chart shows that we still haven’t removed the high seen in 2000. The most frequently traded

price of 4398.5 was seen in the overnight session. The most frequently traded price in the day

session was 4427. The 10 minute TradeFlow chart shows that traders printed the high at 11:00

but most of the volume was seen at 9:30. Typical of pre-holiday get-away behavior. We did see

a spike of volume at 3:50, clearly when the junior traders were adjusting the portfolios prior to

leaving for the holiday weekend.

The Russell 2000 gained 6.20 handles (points) in the Friday session. All the indicators that we

follow herein continues to issue a buy-signal with plenty of room to expand. We remain in a

trading range and seem to be setting up for a run to the 1178.30 and then 1190.30 area. We do

need some backing and filling and probably a retreat before we have enough energy to attack

those levels. Right now we are too spent, having used our energy to recover from the Breixt sell-

off. The most frequently traded price was 1148.25. The most frequently traded price for the

day-session was 1152.75 where 12.5% of the day’s volume traded. The day’s high was made at

10:20 and after that, the volume lightened up until 3:50-4:00 where some volume was seen. The

point and figure chart is much calmer looking than the others and sort of lessens the erratic

movement of the recent action.

The US Dollar Index retreat 0.483 in the Friday session. The current pattern looks like a flag,

which is a bullish pattern. The RSI is pointing lower and the stochastic indicator has just issued

a flattish sell-signal. Our own indicator is also flat. The weekly chart clearly shows that the US

Dollar index is in a trading range. When looking at the quarterly chart, it is easily seen that if we

should explode above 100.60 to 101 we could go to levels not seen since before the financial

crisis and back to the tech bubble levels. The Market Profile chart is a bimodal curve with

bulges, the most frequently traded price, at 95.70 and again at 95.925. 10.4% of the day’s

volume traded at 95.80. The 10 minute Trade Flow chart shows that the heaviest volume was

seen at 2:50 which the day, high was seen at 10:50. The point and figure chart shows some

concern for the bulls.

Crude oil rallied 0.95 handles (points) in the Friday session and continues to remain inside the

trading range. The stochastic indicator and the RSI continue to issue a buy-signal while our own

indicator is issuing a sell-signal. The short upward trending channel lines are 47.86 and 51.04.

The larger and longer down trending channel lines are 49.93 and 44.74. The 10 minute Trade

Flow chart shows that crude did close the day very close to the high for the day. The heavy

volume area was seen at 2:20 and 2:30. The weekly and monthly charts of crude oil are very

positive, but do show that there is resistance at about 62. Above that area is 77 and then 93-96.

The Market Profile chart shows just how range bound the trading is.

Gold rallied 24.3 handles (points) in the Friday session coming close to challenging the high of

1355.4 seen in the hysterical Brexit vote results day. We continue to see all the indicators

trending higher but losing some of their momentum. The next level of resistance above 1355.40

is 1392.60. As the hysteria abates, gold should begin to trade as a commodity again. The most

frequently traded price was 1337.50. Although we like gold, we believe that it needs a rest and

will likely trade back to the 1293.4 area.

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.

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