Federal Reserve’s Hawkish Tone Erases Gains in U.S. Equity Markets

U.S. Equity Markets

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

I am waiting for the U.S. equity markets to get to an extreme oversold condition and make a short term bottom. At this extreme oversold condition I would look to buy the exchange traded funds which mirror the U.S. equity markets and then take advantage of a snapback rally for a trade only. 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). The Dow Jones Industrial Average has been drifting in the 15800-16200 range. If the U.S. equity markets push up and get to an extreme overbought condition I would be looking to short the exchange traded funds which mirror the U.S. equity markets.

The U.S. equity markets opened up strongly today. At one point this morning the Dow Jones Industrial Average was up around 185 points. A lot of the strength early this morning had to do with DB (Deutsche Bank). It was reported that Deutsche Bank is considering buying back several billion euros of its debt. DB (Deutsche Bank) closed up 0.83 (5.4%) at 16.21 today.

At 10:00am Federal Reserve Chair Janet Yellen went before congress and gave a prepared testimony on the state of the economy. Following this testimony Yellen answered questions. The overall tone of Yellen’s testimony was slightly hawkish. She is expecting GDP to pick up in the first quarter and she does not expect the U.S. to be in a situation where it would be necessary to cut interest rates anytime soon. The U.S. equity markets started to drift lower and then sold off sharply at around 2:30pm.

The Dow Jones Industrial Average closed down 99.64 (0.62%) at 15,914.74, the NASDAQ Composite closed up 14.83 (0.35%) at 4,283.59, the S&P 500 closed down 0.35 (0.02%) at 1,851.86, and the Russell-2000 closed down 0.41 (0.04%) at 963.48.

Follow Steve on Twitter at @stevekalayjian

Crude Oil

I am currently on the sidelines in crude oil.

I am looking for crude oil to make a new low in the 19-22 range. If crude oil trades down to this range I expect OPEC to call an emergency meeting and possibly cut production by 10%, pushing back up crude oil prices. I would expect this push up to be short lived as there is a significant oversupply of crude oil.

At 10:30am the EIA Petroleum Status Report was released showing a decrease in crude oil inventories of 0.8 million barrels and an increase in gasoline inventories of 1.3 million barrels from the prior week. Following the release of this report crude oil shot up above the 29 level before being met with heavy selling. Crude oil sold off sharply into the afternoon and made a new low for 2016 of 27.24. This is not a good sign as there is a significant oversupply of crude oil. Last night the CEO of BP (British Petroleum) said that he is bearish crude oil and that he doesn’t expect a cut in surplus production until storage tanks are filled in the second half of 2016 .

Crude oil was down 1.02 (3.60%) today, closing at 27.33.

Follow Steve on Twitter at @stevekalayjian

Gold

I am currently on the sidelines in gold.

I have a buy signal on gold on both the daily and weekly charts. Gold has been trading in the 1182-1199 range. When gold traded above the 1200 level on February 8th I stated that I saw a negative divergence between gold and the gold stocks. When gold was making new highs the gold stocks did not make new highs, a warning sign that the gold stocks would pull in. The gold stocks have started to pull in from the highs earlier this week. I would be looking to buy the gold stocks once they get to a significant oversold condition. The gold stocks I am looking at include ABX (Barrick Gold), NEM (Newmont Mining), GLD (Gold ETF), AUY (Yamana Gold), and KGC (Kinross Gold).

Gold was up 8.00 (0.67%) today, closing at 1,197.40.

Follow Steve on Twitter at @stevekalayjian

Thank you,

Stephen Kalayjian
@stevekalayjian

Market Maker with Steve Kalayjian Sneak Preview

About The Author