Heavy Selling in Crude Oil Pushes U.S. Equity Markets Lower

U.S. Equity Markets

I am on the sidelines in the U.S. equity markets. I was looking to short the U.S. equity markets but they did not get close to the levels where I was looking to get short.

At around 2:00pm this afternoon I got sell signals in crude oil and the U.S. equity markets. The heavy selling in crude oil led to the selling of oil stocks, bringing down the U.S. equity markets. We saw the U.S. equity markets selloff with the Dow Jones Industrial Average down 208.29 points closing at 15,885.22. On January 22nd the Dow Jones Industrial Average traded up to a high of 16,136.79 before selling off today and closing below 15,900. I was looking for the U.S. equity markets to continue working off the extreme oversold condition and get to a more overbought condition. I was hoping for the Dow Jones Industrial Average to move another 150-200 points to the upside which would equate to a move up in the S&P futures to the 1925-1928 range.

In my update released January 18th, I stated that I was looking for the S&P 500 futures to make a short term bottom in the 1810-1850 range, providing an opportunity for an aggressive long entry. On January 20th the S&P futures traded down to 1804.25 and then sharply rallied to a high of 1902.25 on January 22nd. When the S&P 500 futures traded down to 1804.25 it was 142 points below the 10 bar moving average on the daily chart, an extreme oversold condition. Typically when the S&P futures are more than 50 handles away from the 10-bar moving average on the daily chart it signals a significant overbought or oversold condition and the price tends to gravitate back towards the 10-bar moving average.

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Crude Oil

I am currently on the sidelines in crude oil. I was looking to short crude oil in the 36-40 range off of the weekly charts but it never got close to this range. The print low in crude oil last week was 27.56. This is going to be a key number to watch going forward.

Today crude oil was down over 5%, closing at 30.34. Today crude oil traded up to a high of 32.74. At around 2:00 I got a sell signal on the shorter time frames and crude oil sharply sold off, never getting close to my range. Everyone is calling for 20 dollar a barrel crude oil. If crude oil was to get down to that level we would probably see the S&P 500 get down to the 1650-1730 range and the Dow Jones Industrial Average drop another 800-1000 points from where they are currently.

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Gold

I am on the sidelines in gold, waiting for a clearer pattern to setup. I am seeing a clear divergence between gold and the gold stocks such as NEM (Newmont Mining), ABX (Barrick Gold), AUY (Yamana Gold), and KGC (Kinross Gold). When gold is getting these moves up, the gold stocks are not participating. This is telling me that this move up in gold is going to be short lived.

On January 14th gold traded down to a low of 1071.10 before bouncing up to a high of 1109.90 on January 20th. When gold traded down to the 1071 level I was close to getting a sell signal on gold on the daily chart. As the U.S. equity markets sold off today we saw gold catch a bid trading up to a high of 1109.20 and closing up 9 dollars at 1105.30.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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