Discussion by Central Banks of Possibility for More Stimulus Pushes U.S. Equity Markets Higher

I am currently on the sidelines in the U.S. equity markets.

The U.S. equity markets are not out of the woods yet. I am looking for the U.S. equity markets to get to an extreme oversold condition, possibly occurring if the S&P 500 futures pull down to the 1740 level, where I would look to buy the exchange traded funds which mirror the U.S. equity markets for a significant oversold rally. If the U.S. equity markets continue to push up and get to a significant overbought condition I would be looking to short the exchange traded funds which mirror the U.S. equity markets. These exchange traded funds include SPY (mirrors the S&P 500), DIA (mirrors the Dow Jones Industrial Average), IWM (mirrors the Russell 2000), and QQQ (mirrors the NASDAQ-Composite). On the daily chart for the exchange traded fund SPY there is a gap over 7 points below today’s close. This is equivalent to approximately 700 points on the Dow Jones Industrial Average.

We saw another significant rally in the U.S. equity markets today. After closing up 313.66 points on Friday, the Dow Jones Industrial Average closed up 222.56 points today. The Dow Jones Industrial Average has rallied over 500 points in only two days.

Yesterday the President of the European Central Bank (ECB), Mario Draghi, stated that if the European economy gets worse he will look to enact more quantitative easing in March. Last night the Bank of Japan stated that they would do whatever it takes to get their economy going. The Bank of Japan has already gone to negative interest rates, bringing up the possibility of further interest rate cuts deeper into negative territory. Both the Bank of Japan and the ECB are acknowledging that their economies are not growing and that there is a possibility of additional stimulus. The U.S. equity markets responded positively to this news. This is not what the U.S. equity markets should be responding to. The U.S. equity markets should be looking at the growth of the U.S. economy. Fourth quarter GDP for 2015 came in at a mere 0.7% and a strong economy should have a GDP in the 3-5% range.

The Dow Jones Industrial Average closed up 222.57 (1.39%) at 16,196.41, the NASDAQ Composite closed up 98.44 (2.27%) at 4,435.96, the S&P 500 closed up 30.80 (1.65%) at 1,895.58, and the Russell-2000 closed up 23.81 (2.45%) at 995.80.

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11:55 Buy Signal on Dow Jones Industrial Average

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Crude Oil

I am currently on the sidelines in crude oil.

Crude oil traded up to a high of 31.53 early this morning. After Russia and Saudi Arabia stated that they would only be freezing crude oil production at its current levels, crude oil sold off sharply. I do not think crude oil is out of the woods yet. I do not expect a cut in crude oil production until prices fall into the high teens to low 20s range. I am looking for a significant sell off in crude oil in the next few weeks. There is still a supply gut in crude oil and I do not expect to see a short term bottom until we hear the word “cut”.

Crude oil was up 0.10 (0.34%) today, closing at 29.12.

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Gold

I am currently on the sidelines in gold.

I am looking for gold to get to a significant oversold condition in the next 1-3 days. If gold gets to a significant oversold condition I will be providing ranges of where I would be looking to buy the gold stocks ABX (Barrick Gold), NEM (Newmont Mining), GLD (Gold ETF), KGC (Kinross Gold), and AUY (Yamana Gold).

I stated that gold was significantly overbought and that I was looking for a pullback in gold. I knew that the gold stocks were in trouble as I saw divergences between gold and the gold stocks. When gold was making new highs the gold stocks were not making new highs.

Gold was down 37.60 (3.04%) today, closing at 1200.90 after trading down to a low of 1191.50.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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