Happy Holidays and a Happy New Year, See You in 2016
I would like to wish everyone a happy holiday and a happy new year. Thank you for watching and for your continued support. I will continue to be dedicated to providing accurate market predictions in 2016.
Dow Jones Industrial Average and the U.S. Equity Indices
The markets closed early today at 1:00 PM. It was a very quiet day. At one point the Dow Jones Industrial Average was down 50, rallied briefly into positive territory, and then sold off into the afternoon closing down 50 points. Despite being down today the Dow Jones Industrial Average was up over 400 points for the week. There are four business days left until the end of the year. Year to date the NASDAQ is up over 6%, the S&P 500 is up 0.1%, the Dow Jones Industrial Average is down 1.5%, and the Russell 2000 is down over 4%. Next week I do believe the U.S. equity indexes will try to get a good push up, possibly bringing them all into positive territory. At year’s end I expect the NASDAQ composite to have outperformed the other three equity indices and that the Dow Jones Industrial Average and Russell 2000 will lag. For 2015 I am expecting the NASDAQ composite to be up upper single to low double digits, the S&P 500 to be up low to mid-single digits, the Dow Jones Industrial Average to be up low single digits, and the Russell 2000 to be either down or up slightly. If I was a long term investor and I owned mutual funds, exchange traded funds, and/or individual stocks I would look to sell and be 100% in cash if the Dow Jones Industrial Average gets into the 17800-18400 range at some point before the end of the year or during the beginning of the New Year. I would then wait for good opportunities to reenter in 2016. I believe that 2016 will be a very volatile year and that there is a strong possibility that the lows of 2015 will be retested. I do not believe this is a time to be complacent. I am not a firm believer in the buy and hold mentality followed by most mutual funds. I believe in using exchange traded funds which mirror the equity indices to buy, sell, and short the overall market with minimal commission costs compared to the costs of investing in a mutual fund.
Weak Economic Data and Interest Rate Hikes in 2016
I stated that I see a lot of problems in the economy. On Tuesday of this week GDP and existing home sales were reported and on Wednesday durable goods orders and new home sales were reported. The numbers were not great and do not show economic growth. Many people are calling for a recession in 2016. I do believe there will be a slowdown but I do not expect a recession just yet. I believe that because it is an election year the Federal Reserve will do everything possible at any cost to try and avoid the word recession. Some member firms are calling for zero interest rate hikes in 2016. One member firm is very confident the Federal Reserve will raise interest rates four times in 2016, bringing interest rates up to 1.25%. I do not believe the Federal Reserve will raise interest rates in their January meeting after the weak economic data we are seeing.
Today gold traded up about 7 dollars. The 1040 number is very big for gold. Gold held above 1045 and 1047 before shooting up 30-40 dollars from those levels. The gold bugs believe that with these weak economic numbers the Federal Reserve will not look to raise interest rates in the first quarter of 2016. I would rather be a buyer of gold than a seller of gold here. If gold pulls into the 1045-1060 range I would look to buy gold with a 1035 stop.
Crude oil traded above 38 dollars per barrel today. If crude oil pulls into the 33.50-36 range I would look to buy crude oil with a 31 stop. I do believe crude oil is trying to maintain a short term bottom. If I do get this pullback in crude oil my target would be the 38-40.50 range.