Huge Volatility in U.S. Equity Markets

U.S. Equity Markets

Going into 2016 I stated that I expected significant volatility in the U.S. equity markets, probably even more than we saw in 2015. Yesterday I stated that the U.S. equity markets were poised for a significant rally off of the extreme oversold condition. Early this morning the Dow Jones Industrial Average was up around 190 points. Mid-morning the U.S. equity markets were actually down on the day with the Dow Jones Industrial Average down about 80 points. At around 2:35 the U.S. equity markets got a buy signal and exploded to the upside. After being up 190 and then down 80 the Dow Jones Industrial Average closed up 117 points. The mid-morning reversal in the U.S. equity markets can be largely attributed to crude oil. Crude oil traded below 30 today leading to massive selling in the stocks in the S&P energy sector such as XON, CVX, HES, OXY, and SLB. The massive selling in these stocks caused the U.S. equity markets to come off their highs of the day all the way into negative territory. Oil started to snap back from the low of 29.93 rallying 80-90 cents. At around 2:35 I got buy signals in the U.S. equity markets and they rallied into the end of the day.

The U.S. equity markets feel like and are trading as if we are in a bear market. This is very concerning to me. The U.S. equity markets cannot hold any type of a rally. I would not be looking to buy U.S. equities. I am still waiting for the Dow Jones Industrial Average, the S&P 500, the NASDAQ, and the Russell 2000 to work off the oversold condition, get overbought and set up a nice pattern on the daily charts where I would look to get short. I do not think the downside is over just yet. On Friday when the S&P futures closed below 1956 I got a sell signal on the weekly charts. On my weekly charts the trend algorithm will not go from negative to positive in only one week. This move could last anywhere from 3-30 weeks. The last time I got a sell signal on the weekly chart it lasted 8-9 weeks. In a bear market one sees explosive bear market rallies as we have been getting. The S&P futures can run 20-25 handles in 20 minutes off of explosive buy programs and short covering rallies.

Follow Steve on Twitter at @stevekalayjian

Gold

I stated that I would be looking to buy gold if it pulled into the 1075-1085 range. Today gold traded down to the 1084 range. At around 1:30-2:00pm when gold pushed up above the 1090 level I tweeted that I would look to exit any long positions in gold. Gold traded up to 1091.50 before trading down to the 1086 level at the end of the day. I still have a very nice pattern setting up on the daily chart for gold. I would look to buy gold in the 1065-1080 range using a 1055 stop. This is not a position, this is a tradable pattern. I am bearish net overall on gold, however this is a very nice pattern setting up on the daily chart.

Follow Steve on Twitter at @stevekalayjian

Crude Oil

Early last week I stated that I would look to buy crude oil in the 32.90-35.50 range. Crude oil traded through my range and I tweeted that I would look to exit long positions in crude oil at 34.20. If one did not see this tweet they most likely got stopped out when crude oil traded below 30 today. Crude oil is significantly oversold here. Tomorrow a big inventory number is being released and they are calling for heavy inventories in crude oil and gasoline. Today was one of the first times I saw heating oil trade below a dollar. Over the weekend I saw gasoline selling for $1.65 per gallon in New Jersey. This is an amazing time for the American consumer, with the low prices putting more money in their pocket. I do not know how the Federal Reserve thinks their inflation target of 2% will be met in 2016 when they see the deflationary pressures present in crude oil, gasoline and heating oil.

Follow Steve on Twitter at @stevekalayjian

Thank you,

Stephen Kalayjian
@stevekalayjian

Market Maker with Steve Kalayjian Sneak Preview

About The Author