Option Queen Letter By the Option Royals

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

4305 Pointe Gate Drive

Livingston, New Jersey 07039

www.OptnQueen.com

optnqueen@aol.com

February 21, 2016

The paperless society.

Whenever a decision is made to go paperless, we are accepting electronic transmissions of our

information and data as a substitute for their paper predecessors. How does that impact us?

Well, we have witnessed an evolution in the medium with which we communicate and store

information. In coming days there will be very little in the way of paper data and information,

good, bad and ugly will be stored on a hard-drive, in the cloud or in some other electronic

method. To disallow investigation by the FBI of an IPhone or other device would be akin to

disallowing the FBI to investigate paper files. If you could imagine, this would be similar to

arguing that speed limits and other traffic laws did not apply to automobiles around the turn of

the century as they were written with horse and buggy in mind As our society adapts to changes

in the world, brought on by advances in technology, so to must our laws. Can you imagine the

problems seen with hand written notes vs. word documents? The same argument regarding

privacy could be made in that instance. How could you possibly allow that invasion of our

privacy yada yada…. How about smoke signals vs. written documents. The world of

communications are an ever changing and dynamic medium. As to privacy, while we don’t

object to the FBI reading our emails or any documents found on our IPhone or other products we

carry when a warrant is in hand, we do note that the current controversy surrounding the San

Bernardino shooter's IPHONE is rather more complex then the headlines would imply. In this

instance, the government has requested that Apple develop a "backdoor," something that

currently does not exist, making it possible to crack open an IPhone. The question of should

Apple do this vs. should they HAVE to do this are very different. We have very strong opinions

on any sort of compulsory labor.

The S&P chart declined in the Friday session which was an option’s expiration day. The volume

was nothing exceptional. Speaking of volume, we did notice a volume peak in the S&P 500 mini

future’s contract on January 20th and a lesser peak on February 11th. Both volume peaks

occurred on a downdraft day that ended the short-term downtrend. Neither days had enough

volume to indicate that the market washed out. Of further interest is the “W” like formation that

we are seeing on the daily chart. Our one concern is that the low of February 11th was lower than

the previous low of January 20, which kind of negates the pattern. That said, if the market can

clear above 1940 and then 1946, we believe that a short covering rally could take the market to

1987.75 or so. The most frequently traded price was 1912 and the highest volume was seen at

1911. All the indicators that we follow herein are flattish and are truly not helping. They are all

rolling over but have not given anything close to a signal. The Bollinger Bands continue to be

contracted and have also leveled in their formation. The 60 minute 0.2% by 3-box point and

figure chart is positive. The daily 1% by 3-box chart is much less positive with a recent

downside target of 1530.57. As we approach March, remember that the contract will roll during

the second week of March into the June contract. This tends to skew the market and promote

volatility.

The NASDAQ 100 rallied 6.25 handles (points) in the Friday session. The chart shows that the

Bollinger Bands contracted on February 4th and since that time have leveled off neither

expanding nor contracting. The indicators that we follow herein are replicating the behavior

seen with the Bollinger Bands. Volume spikes are seen on the down day January 20th but to a

lessor level on February 8th and even less on February 11th. Since that time, volume has trailed

off. We seem to be stair-stepping to the downside with down-thrusts followed by rallies. The

downward trending channel lines are 4220.57 and 3828.18.. The most frequently traded price in

the Friday session was 4161 and the highest volume was seen at 4160. The 1% by 3-box point

and figure chart has a downside target of 3196.2 and is bumping up against the downtrend line.

The RSI on that chart has turned positive; however, the Bollinger Bands are contracting. The 60

minute 0.2% by 3-box point and figure chart has a downside target of 3927.38 and has an RSI

pointing lower. This index was the best performing index in the Friday session.

The Russell 2000 rallied 4.80 handles (points) in the Friday session. Both the stochastic

indicator and the RSI are pointing higher at overbought levels. Our own indicator is still issuing

a buy signal but is curling over to the downside. The volume for the day was on the light side

and the volume spikes seen in both the S&P 500 and NASDAQ 100 are absent. The last volume

spike was seen in December. The Bollinger Bands for this index are flattish. The down trending

channel lines are 1014.237 and 927.575. The most frequently traded price was 1006.50-1005.75

but 12.6% of the day’s volume was traded at 1008. The weekly chart of the Russell 2000 is

concerning and that said, both the stochastic indicator and the RSI are issuing a buy-signal for

that time-frame. The 10 by 3-box point and figure chart is interesting in that we seem to have hit

a wall of resistance at 1009.20. We continue to watch this index but are not ready to buy.

The US Dollar Index lost 0.355 in the Friday session. While that isn’t an awful change what is

awful is the candlestick left on the chart from that session. We see a rejection of a higher high

for the week with a close below all but the Monday session. The RSI has rolled over and is now

pointing lower. The stochastic indicator is curling over and will likely issue a sell-signal within

a session or two. Our own indicator will issue a sell-signal in the next session. The volume has

fallen off the cliff to a low level. The Bollinger Bands are contracting from a very expanded

level. The Market Profile chart shows the expanded trading range seen in the Friday session.

The most frequently traded price was 96.75 and the area with the most volume was 96.625,

where 7.5% of the volume was seen. The daily 0.5% by 3-box point and figure chart continues

to look negative. The 60 minute 0.2% by 3-box point and figure chart is even more negative

than is the daily point and figure chart. In defense of the US Dollar Index, the action in the 60

minute chart does show a removal of an internal downtrend line. Wait and see before taking any

action.

Crude oil lost 1.05 in the Friday session and continued its stair step lower. The Bollinger Bands

look as though they might be getting ready to expand again. They have been fairly flat of late.

The stochastic indicator is curling over but without conviction and looks a lot like our own

indicator. The RSI is issuing a sell-sign. The only good news about the Friday session is that

the volume is becoming light. The lightest volume seen this week was in the Friday session.

The highest volume and most frequently traded price was 29.10. Crude oil left a bimodal curve

on its Market Profile chart. The daily 1% by 3-box point and figure chart has an upside target of

39.71. The price remains below the downtrend line. The 60 minute 0.5% by 3-box point and

figure chart has a downside target of 28.27. We do not know if this market is bottoming and

would not take a position until or unless the downtrend line at 31.16 was removed on a closing

basis, and then is exceeded for at least two days.

Gold traded very narrowly in the Friday session leaving an inside day candlestick on the chart.

The pattern we see is a cup-and-handle. The downward sloping channel lines are 1232.88 and

1177.38. Our own indicators is issuing a buy-signal but both the RSI and the stochastic indicator

are issuing a sell-signal. This divergence is important to note as it tells you to investigate the

price behavior of this product. The Bollinger Bands continue to expand. The daily 1% by 3-box

point and figure chart has an upside target of 1794.71. The 60 minute 0.25% by 3-box point and

figure chart has an upside target of 1314.26 and a newer downside target of 1192.31. The RSI is

pointing higher. The spread between platinum and gold is becoming very wide. Gold is trading

at 1228 and platinum is trading at 945.6.

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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