Financial Sector and Crude Oil Push U.S. Equity Markets Higher February 12th, 2016

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

The Dow Jones Industrial Average has been in the 15400-16500 range for the last five weeks. On February 11th the S&P 500 futures made a new 52-week low of 1802.50. Going forward I am waiting for the U.S. equity markets to get to an extreme overbought or extreme oversold condition before I would look to take a position. With the type of market we are in, we should get these types of opportunities to enter the U.S. equity markets in the next couple weeks.

We saw an explosive rally today in the U.S. equity markets. This rally was led by the financial sector and crude oil. There was a report early this morning that Jamie Dimon, CEO of JPMorgan Chase, purchased 26.6 million dollars of JPM (JPMorgan Chase) stock for his personal portfolio. This provided a significant boost of confidence to the U.S. equity markets. The XLF (Financial Sector ETF) closed up 4.22%. Crude oil was up 6.3%, providing a boost to many of the oil stocks in the S&P 500.

The Dow Jones Industrial Average closed up 313.66 (2.00%) at 15,973.84, the NASDAQ Composite closed up 70.67 (1.66%) at 4,337.51, the S&P 500 closed up 35.70 (1.95%) at 1,864.78, and the Russell-2000 closed up 18.27 (1.92%) at 971.99.

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Crude Oil

I am currently on the sidelines in crude oil.

Crude oil was up 1.72 (6.30%) today, closing at 29.02. I do not think crude oil is out of the woods yet. There have been rumors regarding an OPEC production cut, however I do not think OPEC is going to do anything just yet. If crude oil pushes down into the 18-22 range I believe crude oil would make a short term bottom as OPEC would then decide to cut production. On February 11th crude oil made a new low for 2016 of 26.05. It was then reported by the Wall Street Journal that the UAE Energy Minister said OPEC is ready to cooperate on a production cut and crude oil has pushed up sharply off that low.

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Gold

I am currently on the sidelines in gold.

Gold was down 8.50 (0.68%) today, closing at 1238.50. Gold is very overbought on the daily chart. I am looking for a pullback to an extreme oversold condition, possibly bringing gold into the 1,180-1,200 range. If gold pullback to an extreme oversold condition I would be looking to buy gold and the gold stocks such as ABX (Barrick Gold), NEM (Newmont Mining), GLD (Gold ETF), KGC (Kinross Gold), and AUY (Yamana Gold).

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Global Central Bank Policy

People are starting to lose faith in the effectiveness of central bank policy. Since the Bear Stearns collapse in 2008, global central banks have enacted over 637 rate cuts. In the last 8 year global central banks have purchased over 12.3 trillion dollars of assets. There is currently 8.3 trillion dollars of global government debt yielding 0% of less. There are currently 489 million people living in countries with official negative rate policies (Eurozone, Denmark, Sweden, Switzerland, and Japan). Inflation expectations in the U.S. and Europe have dropped below the 2008 levels, signaling a global profits recession. Quantitative easing led the markets up from the lows. This quantitative easing is now being looked upon as almost quantitative failure. The policies enacted by the global central banks are not working. The Nikkei is down substantially since the Bank of Japan’s decision to adopt negative interest rates. Last night the Nikkei was down over 700 points. Japan has been in a deflationary period for over 20 years. The Bank of Japan has done everything they can to try to stimulate their economy with little success.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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