FB, AMZN, and Crude Oil Help Push U.S. Equity Markets Higher

U.S. Equity Markets

I am on the sidelines in the U.S. equity markets. I am waiting to see in which direction the U.S. equity markets move.

The U.S. equity markets were strong across the board today. After beating estimates for both revenues and earnings per share FB (Facebook) was up over 15% today. AMZN (Amazon) was up almost 9% today after announcing a music streaming subscription service. AMZN will be releasing their earnings after today’s close.

On January 26th the Shanghai Index closed down 6.4%. Typically a drop of this magnitude in the Chinese equity markets would lead to massive selling in the European and U.S. equity markets. Despite the weakness in the Shanghai Index the Dow Jones Industrial Average was up 282 points that day. Last night the Shanghai Index was down almost 3% and today the Dow Jones Industrial Average was up 125.18 points, closing at 16,069.64.

We are seeing a disconnect between the Chinese stock market and the U.S. equity markets. This is telling me that if we do get another pushdown in the U.S. equity markets I believe it will be a short term bottom where I would look to buy for a rally back up. If the U.S. equity markets push back up I would be looking to get short off of the weekly charts. I got a sell signal on weekly charts in the U.S. equity markets when the S&P 500 futures closed above 1956 on the weekly chart on January 8th.

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Durable Goods Orders, the Pending Home Sales Index, and Tomorrow’s GDP Number

At 8:00am durable goods orders were released for December. “Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.” The consensus was expecting an increase of 0.2% and durable goods orders actually decreased by 5.1%.

At 10:00am the pending home sales index was released for December. “A pending sale is one in which a contract was signed, but not yet closed.” The consensus was expecting an increase of 0.8% and the pending home sales index increased by only 0.1%.

At 8:30 tomorrow the fourth quarter GDP number for 2015 will be released. The consensus is looking for a mere 0.9%. After 4.5 trillion dollars of quantitative easing and the Federal Reserve increasing interest rates to 0.25% in December, the consensus is only expecting GDP to be at 0.9%. The consensus range is for 0.0%-2.3% but even at 2.3% the U.S. economy is not growing as it should.

The Federal Reserve should be focusing on numbers such as these when considering raising interest rates. They should not just be optimistic the U.S. economy will grow and raise interest rates along the way. In the Federal Reserve statement yesterday they maintained that they would be raising interest rates gradually. I do not expect another interest rate hike in the first 6 months of 2016, and possibly not even in the third quarter of 2016. The data is showing an economic slowdown and we are seeing an economic slowdown worldwide.

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Crude Oil

I would be looking to buy crude oil if it gets into the 24-28 range using a 22 stop. If crude oil gets into this range I believe there will be a 90% chance that OPEC will decide to reduce crude oil production and crude oil prices should push back up.

There were rumors today that OPEC was in talks with Russia about cutting crude oil production by 5%. Crude oil was up over 8% at one point today trading up to a high of 34.82 before closing at 33.22. If we get another pushdown in crude oil I believe it will be short lived. I believe that pushdown will be what it takes for OPEC to decide to decrease crude oil production.

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Gold

I have a buy signal on the daily chart in gold. I would be looking to buy gold in the 1078-1090 range using a 1068 stop.

Today gold traded down from a high of 1126.20 to a low of 1110.20 before closing at 1116.10. I am seeing a clear divergence between gold and the gold stocks such as ABX (Barrick Gold), AUY (Yamana Gold), and KGC (Kinross Gold). When gold is getting these moves up, these gold stocks are not participating. If gold closes above 1131.25 tomorrow I will have a buy signal on gold on the weekly chart. If I get this buy signal the next pullback in gold should provide a great buying opportunity.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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