JP Morgan’s Earnings Boost U.S. Equity Markets

U.S. Equity Markets

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

I had been looking to buy the exchange traded funds which mirror the U.S. equity markets if the Dow Jones Industrial Average pulled into the 17,000-17,300 range. On March 24th the Dow Jones Industrial Average traded down to a low of 17,399.01 but never entered my range. I expect the U.S. equity markets to trade within a range and I believe the markets are on borrowed time.

I am seeing significant signs of complacency. I stated that if I was a long term investor I would be looking to sell any long positions in equities, mutual funds, and/or exchange traded funds in the 17,400-17,900 range on the Dow Jones Industrial Average. I would be looking to be on the sidelines, 100% in cash. If the Dow Jones Industrial Average pushes higher (possibly into the 18,200-18,500 range) I would potentially be looking to short the U.S. equity markets. There are four gaps below the market down to the 15,500 level on the Dow Jones Industrial Average. I believe these gaps will get filled sometime in 2016 and I expect to see much lower prices by mid-late summer. In June England will decide whether or not they want to remain a part of the European Union. This could potentially be a catalyst for declines in the U.S. equity markets this summer.

I got a buy signal on the weekly chart for the exchange traded fund SPY when it closed at 202.76 on March 11th. The Dow Jones Industrial Average has rallied over 700 points from where I got that buy signal. This rally in the U.S. equity markets from the February 11th lows has been fueled by central bank intervention and short covering. Central banks are doing everything they can to boost asset prices including the equity markets. At 8:30am retail sales for March were released, showing a decrease of 0.3%. Retail sales were expected to increase by 0.1%. In addition world economies are sluggish and both U.S. and worldwide GDP forecasts are weak. J P Morgan, Barclays, Goldman Sachs, and the Atlanta Fed U.S. 2016 first quarter (Q1) GDP forecasts now range between 0.1%-0.9%. Yesterday the International Monetary Fund (IMF) cut global growth expectations for 2016 from 3.4% to 3.2%.

This morning JPM (JPMorgan Chase & Co.) reported earnings that were better than expected. This was the catalyst for today’s rally in the U.S. equity markets. With the recent weakness in corporate earnings analysts have lowered their expectations to the point where it is not difficult for major companies to beat.

The Dow Jones Industrial Average closed up 187.03 (1.06%) at 17,908.28, the NASDAQ Composite closed up 75.33 (1.55%) at 4,947.42, the S&P 500 closed up 20.70 (1.00%) at 2,082.42, and the Russell 2000 closed up 24.21 (2.19%) at 1,129.93.

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Kalayjian Signals

TBT (ProShares UltraShort 20+ Year Treasury): Sell Signal on Daily Chart (04/06/16)
Entries: 36.35 (filled), 36.89, 37.44
Stop: 61.73
Status: Covered at 36.35 (+0.00)

NEM (Newmont Mining Corporation): Buy Signal on Daily Chart (04/07/16)
Entries: 27.10, 26.45, 25.80
Stop: 24.89
Status: No Fills

NVAX (Novavax, Inc.): Buy Signal on Daily Chart (04/07/16)
Entries: 5.39, 5.10, 4.81
Stop: 4.41
Status: No Fills

MDLZ (Mondelez International, Inc.): Buy Signal on Daily Chart (04/07/16)
Entries: 41.26, 40.65, 40.05
Stop: 39.21
Status: No Fills

GFI (Gold Fields Ltd.): Buy Signal on Daily Chart (04/11/16)
Entries: 4.01, 3.85, 3.70
Stop: 3.49
Status: No Fills

ABX (Barrick Gold Corporation): Buy Signal on Daily Chart (04/11/16)
Entries: 14.80, 14.42, 14.06
Stop: 13.53
Status: No Fills

SLV (iShares Silver Trust ETF): Buy Signal on Daily Chart (04/12/16)
Entries: 14.96, 14.78, 14.61
Stop: 14.37
Status: No Fills

MU (Micron Technology, Inc.): Sell Signal on Daily Chart (04/13/16)
Entries: 10.54 (filled), 10.91, 11.29
Stop: 11.82
Status: Short at 10.54

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Crude Oil

Crude oil is currently very overbought on both the daily and weekly charts and I am looking for a pullback. I would be looking to buy crude oil in the 31-36 range using a 29 stop for a trade only. Long term I am still bearish crude oil. If crude oil continues pushing higher I would possibly be looking to short crude oil.

Yesterday it was reported that Saudi Arabia and Russia had agreed on a production freeze. Around 15 major oil producers including both OPEC and non-OPEC producers are expected to attend a meeting in Doha on April 17th. Even if a production freeze is agreed upon it would be irrelevant as production is currently near capacity. Crude oil inventories are at a record high (over one billion barrels worldwide) and are increasing further with production continuing to outpace demand. As crude oil prices continue to increase I expect to see more shale production.

Reuters released an article today stating that Arabia now has a record number of oil and gas drilling rigs. In March there were almost 290 active rigs in Saudi Arabia, Kuwait, the United Arab Emirates and Oman combined. Nearly 30% of all active rigs outside North America are now located on the Arabian Peninsula.
http://www.reuters.com/article/us-arabia-oil-kemp-idUSKCN0XA1LA

At 10:30am the EIA Petroleum status report was released showing an increase in crude oil inventories by 6.6 million barrels from the prior week, much higher than the expected increase of 1 million barrels.

Crude oil was down 0.09 (0.22%) today, closing at 41.55.

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Gold

If gold pulls into the 1,180-1,210 range using a 1,155 stop I would be looking to buy gold and the gold stocks. I am looking for gold to setup again, getting to an oversold condition before pushing back up. I believe this pushup could bring gold up to the 1,280-1,290 range. The gold stocks I am looking at include ABX (Barrick Gold), AUY (Yamana Gold), GDX (Gold Miners ETF), GG (Goldcorp), KGC (Kinross Gold), NEM (Newmont Mining) and SLV (Silver ETF). I currently have Kalayjian Buy Signals for NEM, GFI (Gold Fields), ABX, and SLV. (See Kalayjian Signals)

At 2:00pm the beige book was released. This report was strong across the board showing strength in manufacturing and wages. Gold got spooked due to the fear that this data would increase the likelihood of an increase in the federal funds rate.

Gold was down 13.30 (1.06%) today, closing at 1244.10.

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