ECB To The Rescue

If the Dow Jones Industrial Average pushes up into the 17,400-17,900 range I would be looking to take profits and sell any long positions in equities, mutual funds, and/or exchange traded funds. If the U.S. equity markets continue straight up through this range to a significant overbought condition where the S&P 500 futures are over 100 points above the 10-bar moving average on the daily chart I will be providing a range for a trade only where I would be looking to:

1. Buy the exchange traded funds which move in the opposite direction of the U.S. equity markets. These exchange traded funds include DOG (Dow Jones Industrial Average), PSQ (NASDAQ Composite), SH (S&P 500), and RWM (Russell 2000).
2. Short 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 expect significant volatility in 2016 and the motto for the U.S. equity markets this year is to trade the aberrations. There is a staggering amount of overhead resistance on the weekly chart for the Dow Jones Industrial average in the 17,400-18,300 range. There is a gap above on the weekly chart for SPY up to the 203.87 level. I expect this gap to be filled before the U.S. equity markets head back down. With today’s close I now have a buy signal on the weekly chart for SPY. I expect this buy signal to last 6-10 weeks before lower prices come in the late spring-early summer. In April-May of 2015 the Dow Jones Industrial made a top before breaking all the way down to 15,300 level. In the fourth quarter of 2015 the Dow Jones Industrial Average rallied back up to the 17,900 level before breaking all the way down to the 15,500 level in early 2016. If the Dow Jones Industrial Average pushes up into my range it could be deemed a triple top which would not be a good sign.

There are now four gaps below on the daily chart for SPY. These gaps go down to the 182.86 level, equivalent to approximately the 15,500 level on the Dow Jones Industrial Average. On the weekly chart for SPY there is a gap below down to the 186.67 level, equivalent to approximately the 15,900 level on the Dow Jones Industrial Average. On the weekly chart for DIA there are gaps below down to the 164.96 and 159.98 levels, equivalent to approximately the 16,500 and 16,000 levels on the Dow Jones Industrial Average. I do believe these gaps below will get filled sometime in 2016.

I have been calling for a pushup in the U.S. equity markets. The Dow Jones Industrial rallied 900 points prior to today, fueled by the hope that the ECB would enact additional quantitative easing. There was a massive rally in the European markets this morning in response to the ECB’s decision to extend their quantitative easing program, increase their bond purchasing program, and cut interest rates further. This rally carried over into the U.S. equity markets today and the Dow Jones Industrial rallied another 200 points. On Wednesday, March 16th the FOMC will announce whether they decided to raise the federal funds rate at their March meeting. I believe there is a 100% chance that the FOMC will decide to leave rates unchanged at this meeting.

It is almost as if the only savior to the equity markets worldwide has been central bank intervention. This is an abnormal way to push up the equity markets. Equity markets should be rallying based on strong economic growth and corporate earnings. The situation is setting up like a house of cards and I believe it is going to end ugly.

The Dow Jones Industrial Average closed up 218.18 (1.28%) at 17,213.31, the NASDAQ Composite closed up 86.31 (1.85%) 4,748.47, the S&P 500 closed up 32.62 (1.64%) at 2,022.19, and the Russell-2000 closed up 23.57 (2.22%) at 1,087.56.

Long Term Signals:

FTR (Frontier Communications): Sell Signal on Daily Chart (03/10/16)
Entries: 5.30 (filled), 5.43, 5.58
Stop: 5.76
Status: Short at 5.30

GRPN (Groupon): Sell Signal on Daily Chart (03/10/16)
Entries: 4.27, 4.43, 4.59
Stop: 4.81
Status: No Fills

Follow Steve on Twitter at @stevekalayjian

Crude Oil

I am currently on the sidelines in crude oil.

Crude oil is starting to run into a brick wall in the 38.30-38.90 range. When the U.S. equity markets start to break I do believe we will see crude oil head back down. If the Dow Jones Industrial Average gets up into my range, I would be looking to sell any oil stocks such as XOM (Exxon), CVX (Chevron), MRO (Marathon Oil), and SWN (Southwestern Energy). Crude oil may get up to the 40-41 range but I think that would be it before heading back down, potentially breaking the 26.05 level and making a new low for 2016. Do not think that this is a turning point in crude oil where it will be going back up to 80 dollars a barrel. Crude oil has a significant amount of overhead resistance on the weekly chart. 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 was up 0.47 (1.24%) today, closing at 38.49.

Long Term Signals:

BTU (Peabody Energy): Buy Signal on Daily Chart (03/10/16)
Entries: 5.11, 4.35, 3.59
Stop: 2.52
Status: No Fills

Follow Steve on Twitter at @stevekalayjian

Gold

I am looking for a pullback in gold to make a higher low in the 1,195-1,215 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).

Gold is in a significant bullish trend and is very strong on the weekly charts. We saw gold down today with the rally in the equity markets. I think this is going to be a perfect scenario where gold pulls in as the equity markets rally and then pushes back up once the equity markets drop.

Gold was down 22.00 (1.73%) today, closing at 1251.10.

Follow Steve on Twitter at @stevekalayjian

Please see the Steve Kalayjian’s The Kalayjian Report and Newsletter Disclaimers and Disclosures

About The Author