DOW Up 7 Days in a Row, U.S. Equity Markets Extremely Overbought

U.S. Equity Markets

The Dow Jones Industrial Average is in the 17,400-17,900 range where I stated that if I was a long term investor I would be looking to sell any long positions in equities, mutual funds, and/or exchange traded funds.

The U.S. equity markets are extremely overbought on both the daily and weekly charts. About two weeks ago I got a buy signal on the weekly charts for the U.S. equity markets. The U.S. equity markets will not go from a buy signal on the weekly charts to a sell signal on the weekly charts in only a couple weeks. I am looking for the Dow Jones Industrial Average to pull back to an oversold condition in the 17,000-17,200 range where for a trade only I would be looking to buy the exchange traded funds which mirror the U.S. equity markets. These exchange traded funds include DIA (Dow Jones Industrial Average), QQQ (NASDAQ Composite), SPY (S&P 500), and IWM (Russell 2000). I would then be looking for a push up to the 17,700-17,900 range.

There is a significant amount of overhead resistance on the Dow Jones Industrial Average; however there is still a chance the index will make a double top at the 18,300 level. I expect the Dow Jones Industrial Average to reach a top in the April-May time period. In April-May of 2015 I called the market top when I stated that if the Dow Jones Industrial Average got into the 18,100-18,400 range I would be looking to sell any long positions and establish short positions. The Dow Jones Industrial Average got up to the 18,300 level and I then stated I was looking for a move down to the 16,100 range sometime in the summer of 2015 and the Dow Jones Industrial Average traded down to a low of 15,371. I expect the exact same scenario to occur in 2016, with significantly lower prices coming by the end of the summer. There are three major gaps below on the Dow Jones Industrial Average going down to the 15,300 level.

I have stated that I expect significant volatility in 2016 and that the motto for the U.S. equity markets this year is to trade the aberrations. The Dow Jones Industrial Average has rallied from the 16,200 level to the 17,600 level because of central bank intervention and short covering. It has not rallied due to a strong worldwide economic situation or strong corporate earnings. This does not make for a healthy equity market. Now is not the time to be complacent, thinking that the equity markets will go up forever. The Federal Reserve will eventually run out of bullets and be unable to continue propping up the U.S. equity markets. The Federal Reserve has done what they can to make the state of the U.S. economy appear better than it truly is. They are not solving any of the underlying problems and are just kicking the can down the road.

After the December 2015 meeting the FOMC stated that they were forecasting four rate hikes in 2016 with a target of 3.25-3.50% by 2018. This was a very aggressive forecast and I did not see it coming to fruition. After the March meeting the FOMC announced that they are now only forecasting 2 rate hikes in 2016. I do not expect 2 rate hikes in 2016. I believe the FOMC may choose to hike the federal funds rate once at the end of the year in order to save face.

The Dow Jones Industrial Average closed up 21.57 (0.12%) at 17,623.87, the NASDAQ Composite closed up 13.23 (0.28%) at 4,808.87, the S&P 500 closed up 2.02 (0.10%) at 2,051.60, and the Russell 2000 closed down 3.10 (0.28%) at 1,098.58.

Long Term Signals:

NQ (NQ Mobile): Sell Signal on Daily Chart (03/16/16)
Entries: 3.99, 4.14, 4.29
Stop: 4.49
Status: No Fills

TWTR (Twitter): Sell Signal on Daily Chart (03/16/16)
Entries: 16.89 (filled), 17.59, 18.29
Stop: 19.27
Status: Short at 16.89

BBD (Banco Bradesco S.A.): Sell Signal on Daily Chart (03/16/16)
Entries: Gapped up, filled all three entries at 7.33
Stop: 8.00
Status: Short 3 at average price of 7.33

VRTX (Vertex Pharmaceuticals): Sell Signal on Daily Chart (03/17/16)
Entries: 82.82 (filled), 85.32, 88.32
Stop: 92.52
Status: Covered at 82.52 (+0.30)

VALE (Vale S.A.): Buy Signal on Daily Chart (03/18/16)
Entries: 4.04, 3.87, 3.70
Stop: 3.47
Status: No Fills

NKE (Nike): Buy Signal on Daily Chart (03/18/16)
Entries: 62.24, 61.31, 60.37
Stop: 59.07
Status: No Fills

ODP (Office Depot): Buy Signal on Daily Chart (03/18/16)
Entries: 5.68 (filled), 5.53 (filled), 5.39
Stop: 5.19
Status: Long 2 at average price of 5.605

ITUB (Itaú Unibanco Holding S.A.): Buy Signal on Daily Chart (03/18/16)
Entries: 8.76, 8.54, 8.32
Stop: 8.02
Status: No Fills

BMY (Bristol-Myers Squibb): Sell Signal on Daily Chart (03/18/16)
Entries: 62.48 (filled), 63.49, 64.51
Stop: 65.93
Status: Short at 62.48

S (Sprint): Sell Signal on Daily Chart (03/18/16)
Entries: 3.53, 3.67, 3.81
Stop: 4.01
Status: No Fills

BMRN (BioMarin Pharmaceutical): Sell Signal on Daily Chart (03/18/16)
Entries: 80.38 (filled), 83.41, 86.43
Stop: 90.67
Status: Covered at 76.60 (+3.78)

AIG (American International Group): Buy Signal on Daily Chart (03/21/16)
Entries: 52.94, 52.16, 51.39
Stop: 50.32
Status: No Fills

Follow Steve on Twitter at @stevekalayjian

Crude Oil

I am currently on the sidelines in crude oil.

I am now looking at the May futures contract for crude oil. Fundamentally nothing has changed for crude oil. Iran has stated that they plan to boost their crude oil output to 4 million barrels daily before they will even consider participating in a possible production freeze or cut. Shale producers will be pumping out 9 million barrels of crude oil daily. Crude oil inventories are at a record high (over one billion barrels worldwide) and are increasing further with production continuing to outpace demand.

Crude oil is up over 15.50 from the February 11th low for 2016 of 26.05. There is a correlation between crude oil and the U.S. equity markets. Both have rallied together and I expect them to push back down together. I expect a rise in the U.S. dollar as the U.S. equity markets decline, putting pressure on commodity prices.

Crude oil was up 0.49 (1.12%) today, closing at 41.61.

Follow Steve on Twitter at @stevekalayjian

Gold

I am looking for gold to pull in to the 1,190-1,215 range where I would be looking to buy gold and the gold stocks. The gold stocks I am looking at include ABX (Barrick Gold), AUY (Yamana Gold), GLD (Gold ETF), KGC (Kinross Gold), and NEM (Newmont Mining).

On February 5th I got a buy signal on the weekly chart for gold with the close above the 1,131.30 level. Gold rallied over 150 points from where I got the buy signal on the weekly chart, trading up to a 2016 high of 1,287.80 on March 11th. I am expecting gold to pull in as the U.S. equity markets to push higher. I will then be looking for the U.S. equity markets to pull in and create some type of a short term bottom as gold pushes back up.

Gold was down 11.90 (0.95%) today, closing at 1244.10.

Follow Steve on Twitter at @stevekalayjian

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