Market Very Close to Getting Oversold Condition on Daily Chart
On Friday the employment situation reported 271 thousand new jobs and that unemployment had dipped to 5%. The market was down and then rallied in the afternoon, closing up 46 points.
Today the DOW was down 180 points, the NASDAQ was down 52 points, the S&P 500 was down 21 points, and the Russell 2000 was down 15 points. The market got spooked by the weak economic data from China and the possibility of the Federal Reserve raising interest rates in November or more likely December. Even though unemployment is down to 5% I still do not believe the Federal Reserve will raise interest rates due to the weakness in the global economy. I have been stating that I am looking for the market to make a series of higher lows. The market is starting to get to an oversold condition before we push back up. At year’s end I am looking for the NASDAQ to be up double digits, the S&P 500 to be up 5-9%, and the DOW and the Russell 2000 to be up low to mid-single digits. At the end of the year I would look to be 100% in cash because I believe there is a strong possibility that the market will retest the lows in the second or third quarter of next year. I am looking for the market to pull in over the next 1-3 days, set up an oversold condition on the daily charts, and then push back up. When this pattern sets up on the daily charts I would be looking to buy QQQ (the ETF which mirrors the NASDAQ), as I believe the NASDAQ will outperform the other indexes.
I stated I would look to buy oil off the weekly chart in the 42.50-44.50 range. Today oil got down to the 43.68 level before turning up and closing above the 44.10 level. Even though I have a buy signal on the weekly chart I still have a sell on signal on the daily chart. If oil on a weekly closing basis takes out the 41.74 level I will have a sell signal on the weekly chart for oil. If this level is broken oil may have a couple days of an oversold bounce but I believe oil will retest the lows at the 38 level. I stated that I was bullish oil for a trade but bearish on oil overall.
I stated that I was bearish gold and that if gold got above the 1180 level if I was a long term investor I would be looking to sell gold and gold stocks which had been bought lower and go into cash. Gold stocks such as AUY, NUGT, and ABX had made huge gains. These stocks could not make higher highs when gold made new highs. This divergence along with my sell signal on gold on the weekly chart provided me with my bearish outlook on gold. In a span of 3 weeks gold has dropped well over $100. I was looking for gold to pull in for a short term trade. When I got a sell signal on gold on the daily chart which mirrored the weekly chart I was looking for a bounce in gold. I never got that bounce and on Friday gold dropped as a result of the unemployment number. The strong US dollar and the possibility of the Federal Reserve raising interest rates in December is hurting gold. Gold is now significantly oversold and I am waiting to see what will happen.