Earnings Season for First Quarter Begins Tonight

U.S. Equity Markets

If the Dow Jones Industrial Average pulls into the 17,000-17,300 range, getting to an oversold condition on the daily charts, I would be looking to buy the exchange traded funds which mirror the U.S. equity markets for a trade only. I would then be looking for a 200-500 point move back up in the Dow Jones Industrial Average as the oversold condition is worked off. I would not be expecting the Dow Jones Industrial Average to push up to new highs. The exchange traded funds which mirror the U.S. equity markets include DIA (Dow Jones Industrial Average), QQQ (NASDAQ Composite), SPY (S&P 500), and IWM (Russell 2000).

I expect the U.S. equity markets to trade within a range in the April-May time period. I then expect the U.S. equity markets to start selling off in late-May early-June. 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. Now is not a time to be complacent. The U.S. equity markets are starting to show signs of exhaustion, running into a significant amount of overhead resistance. The 14% rally from the February 11th lows has been fueled by central bank intervention and short covering. Even if the Dow Jones Industrial Average does push up to the 18,300 level now is still a great time to begin taking money off the table. There are four gaps below the market down to the 15,500 level on the Dow Jones Industrial Average. I believe these gaps will get filled sometime in 2016.

On Friday J P Morgan, Barclays, Goldman Sachs, and the Atlanta Fed all cut their U.S. 2016 first quarter (Q1) GDP forecasts significantly. These forecasts were reduced from 0.4%-1.2% to 0.1%-0.9%. Tonight earnings season for 2016 Q1 begins with Alcoa releasing their earnings. It has been reported that only 3 of the 10 sectors are expected to show an increase in earnings. Earnings forecasts overall are down 3.6% from the prior quarter.

Today BlackRock’s Larry Fink stated that negative rates could potentially hurt consumer spending and undermine economic growth. He said that not enough attention was being paid to these effects and that there were “limits on how far and for how long negative policy rates can go.” He elaborated that at a certain point negative rates could encourage both individuals and companies to save cash, greatly reducing spending and hindering economic growth. I am not a supporter of negative interest rates and agree that more attention needs to be paid to the potential negative effects.
http://www.cnbc.com/2016/04/10/blackrocks-larry-fink-warns-negative-rates-could-hit-spending.html

In a speech Saturday European Central Bank (ECB) Executive Board Member Yves Mersch warned that the measures enacted by central banks with the goal of spurring growth may eventually show diminishing returns. This rally in the U.S. equity markets has been fueled by central bank intervention. I have stated that while central bank intervention has been able to prop up the equity markets, it has been unable to promote growth or fix the underlying economic problems.
http://www.bloomberg.com/news/articles/2016-04-09/ecb-s-mersch-warns-of-diminishing-returns-in-central-bank-action

The Dow Jones Industrial Average closed down 20.55 (0.12%) at 17,556.41, the NASDAQ Composite closed down 17.29 (0.36%) at 4,833.40, the S&P 500 closed down 5.61 (0.27%) at 2,041.99, and the Russell 2000 closed down 2.97 (0.27%) at 1,094.34.

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Kalayjian Signals

BMY (Bristol-Myers Squibb Company): Buy Signal on Daily Chart (04/05/16)
Entries: 65.00, 64.04, 63.08
Stop: 61.73
Status: No Fills

NEM (Newmont Mining Corporation): Buy Signal on Daily Chart (04/07/16)
Entries: 27.10, 26.45, 25.80
Stop: 24.89
Status: No Fills

LLY (Eli Lilly and Company): Buy Signal on Daily Chart (04/07/16)
Entries: 73.56, 72.36, 71.16
Stop: 69.50
Status: No Fills

NVAX (Novavax, Inc.): Buy Signal on Daily Chart (04/07/16)
Entries: 5.39, 5.10, 4.81
Stop: 4.41
Status: No Fills

CELG (Celgene Corporation): Buy Signal on Daily Chart (04/07/16)
Entries: 105.96 (filled), 103.63, 101.31
Stop: 98.06
Status: Sold at 106.52 (+0.56)

MDLZ (Mondelez International, Inc.): Buy Signal on Daily Chart (04/07/16)
Entries: 41.26, 40.65, 40.05
Stop: 39.21
Status: No Fills

GFI (Gold Fields Ltd.): Buy Signal on Daily Chart (04/11/16)
Entries: 4.01, 3.85, 3.70
Stop: 3.49
Status: No Fills

ABX (Barrick Gold Corporation): Buy Signal on Daily Chart (04/11/16)
Entries: 14.80, 14.42, 14.06
Stop: 13.53
Status: No Fills

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Crude Oil

I am currently on the sidelines in crude oil.

I have a buy signal on the weekly chart for crude oil. I am looking for a pushdown in crude oil to setup a buying opportunity for a trade only. I am still bearish crude oil long term. Crude oil inventories are at a record high (over one billion barrels worldwide) and are increasing further with production continuing to outpace demand.

Around 15 major oil producers including both OPEC and non-OPEC producers are expected to attend a meeting in Doha on April 17th. Today it was reported by Algeria’s energy minister that this meeting aims to cap output. He also stated that a freeze is needed to help the oil market recover and that many states including Russia are not willing to cut production. 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. It was reported that Saudi Arabia will not participate in a production freeze if Iran refuses to do so.

Crude oil was up 0.70 (1.77%) today, closing at 40.36.

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Gold

If gold pulls into the 1,190-1,215 range I would be looking to buy gold and gold stocks.

There is a beautiful pattern setting up on the weekly chart for gold. I currently have a buy signal on the daily charts for many of the gold stocks. (See Kalayjian Signals for NEM, GFI, and ABX buy signals) I stated that I expected gold to push up as the U.S. equity markets pull in. I believe gold could reach the 1,300 level on the next push up.

Gold was up 19.70 (1.589%) today, closing at 1259.80.

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Copyright 2016 KnowVera Research

Thank you,

Stephen Kalayjian
@stevekalayjian

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