Crude Oil Rally Pushes Up U.S. Equity Markets

If the Dow Jones Industrial Average gets into the 16850-17400 range I would be looking to short the exchange traded funds which mirror the U.S. equity markets. I would also look to sell any stocks, mutual funds, and/or exchange traded funds one may own if the Dow Jones Industrial Average rallies into this range as I believe the gaps below will get filled. The exchange traded funds which mirror the U.S. equity markets include DIA (mirrors Dow Jones Industrial Average), QQQ (mirrors NASDAQ Composite), SPY (mirrors S&P 500), and IWM (mirrors Russell-2000).

The U.S. equity markets are almost to a significant overbought condition on the weekly charts. If the S&P 500 futures close above the 2010 level on the weekly chart I will then get a buy signal on the U.S. equity markets. I do not expect to get this buy signal as I believe the U.S. equity markets will push back down if they get to a significant overbought condition.

As I stated there are now four gaps below on the daily chart for the exchange traded fund SPY. SPY was up 2.34 (1.21%) today, closing at 195.54. These gaps go down to the 182.86 level, equivalent to the 15,500 level on the Dow Jones Industrial Average. I believe these gaps will get filled sometime in the next 10-12 weeks. I expect to see new lows for 2016 once these gaps are filled. If the Dow Jones Industrial Average pushes down to this level I expect it to continue pushing down and make new lows for 2016. On January 20th the Dow Jones Industrial Average traded down to the low for 2016 of 15450.56.

We saw an explosive rally today in the U.S. equity markets after crude oil prices shot up in reaction to comments from the Venezuela oil minister. The Dow Jones Industrial Average almost closed above the 16,700 level closing up 212.30 (1.29%) at 16,697.29. The NASDAQ Composite closed up 39.60 (0.87%) at 4,582.21, the S&P 500 closed up 21.90 (1.13%) at 1,951.70, and the Russell-2000 closed up 9.50 (0.93%) at 1,031.58.

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Crude Oil

I am currently on the sidelines in crude oil.

I am waiting for crude oil to get to an extreme overbought condition or an extreme oversold condition before I would look to take a position in crude oil and the oil stocks.

At around 11:30-12:00pm today we saw an explosive rally in crude oil following comments from the Venezuela oil minister that Venezuela and the other oil producers will contemplate a production freeze in their March meeting. We have been hearing talks of a potential production freeze for weeks. A couple weeks ago Russia and Saudi Arabia said they would consider freezing production at current levels. Many of the oil producers are already close to maximum capacity so a production freeze at current levels would not mean much. The Venezuela oil minister also said that if crude oil inventories keep rising prices will collapse.

There is a significant amount of overhead resistance in crude oil. I do not expect to see any sort of a bottom in crude oil until we see a cut in production. The low for crude oil in 2016 is 26.05 and I do think there is a good chance that crude oil will make a new low.

Crude oil was up 0.86 (2.67%) today, closing at 33.08.

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Gold

I am currently on the sidelines in gold.

Gold has been stuck in a range between 1,190 and 1,265. I am seeing the gold stocks starting to pull in on the daily charts. I believe the gold stocks will set up for a buying opportunity on the daily charts in the next 1-2 weeks. The gold stocks may possibly even set up on the weekly charts. I believe we could see new highs for 2016 in the gold stocks after this buying opportunity sets up. The gold stocks I am looking at include NEM (Newmont Mining), ABX (Barrick Gold), GLD (Gold ETF), KGC (Kinross Gold), and AUY (Yamana Gold).

Gold was up 0.80 (0.06%) today, closing at 1241.50.

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