U.S. Equity Markets Nearing Wall of Overhead Resistance

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

The Dow Jones Industrial Average is in the 17,400-17,900 range where 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. I would be looking to be on the sidelines, 100% in cash. This is not a time to be complacent. A common belief is that the markets always come back. If it was not for central bank intervention the markets would not come back. This rally in the U.S. equity markets has been fueled by central bank intervention. The Bank of Japan adopted negative interest rates and the European Central Bank (ECB) enacted additional quantitative easing measures. At the March meeting the Federal Open Market Committee (FOMC) announced that they are now only forecasting 2 rate hikes in 2016 after forecasting 4 rate hikes at the December 2015 meeting. This rally has not been based on economic growth of strong corporate earnings. The heartbeat of an economy is the GDP. U.S. 2015 fourth-quarter GDP was last reported at 1.0%. Europe is almost fighting a deflationary scenario and Japan has been fighting a deflationary scenario.

If the Dow Jones Industrial Average pushes through my range up to the 18,000-18,200 range it would be a double top. I would possibly be looking to short the U.S. equity markets if the Dow Jones Industrial Average enters the 18,000-18,500 range.

The U.S. equity markets are extremely overbought on the weekly charts. I got a buy signal on the weekly chart for the exchange traded fund SPY when it closed at 202.76 on March 11th. I expect the Dow Jones Industrial Average to be stuck in the 17,000-18,300 range for the next month and a half before exhausting this upward momentum and heading back down. Going forward I am looking for tradable pullbacks on the daily charts within this range. On this move down I expect the three gaps below on the daily chart for SPY to be filled. These gaps go down to the 182.86 level, equivalent to approximately the 15,500 level on the Dow Jones Industrial Average. Once these gaps are filled I believe the U.S. equity markets could possibly push down to new lows for 2016.

At 8:30am the employment situation report for the month of March was released. The unemployment rate increased to 5% from 4.9%. Nonfarm payrolls increased by 215,000, slightly higher than the expected 210,000. Average hourly earnings increased by 0.3%, slightly higher than the expected 0.2%. The U.S. equity markets declined following the release of this report. At 10:00am the ISM Manufacturing Index was reported at 51.8, better than the expected 50.5. Following this report the U.S. equity markets began to reverse. At 10:15am I got a buy signal on the U.S. equity markets and they never looked back. The Dow Jones Industrial Average closed up 107.66 (0.61%) at 17,792.75, the NASDAQ Composite closed up 44.69 (0.92%) at 4,914.54, the S&P 500 closed up 13.04 (0.63%) at 2,072.78, and the Russell 2000 closed up 3.66 (0.33%) at 1,117.68.

Long Term Signals:

MDRX (Allscripts Healthcare Solutions, Inc.): Buy Signal on Daily Chart (04/01/16)
Entries: 12.95, 12.68, 12.40
Stop: 12.06
Status: No Fills

WFM (Whole Foods Market, Inc.): Sell Signal on Daily Chart (04/01/16)
Entries: 31.69, 32.27, 32.85
Stop: 33.67
Status: No Fills

BA (The Boeing Company): Sell Signal on Daily Chart (04/01/16)
Entries: 128.97, 130.95, 132.95
Stop: 135.73
Status: No Fills

P (Pandora Media, Inc.): Sell Signal on Daily Chart (04/01/16)
Entries: 9.39, 9.84, 10.29
Stop: 10.92
Status: No Fills

Follow Steve on Twitter at @stevekalayjian

Crude Oil

I am currently on the sidelines in crude oil.

Early this morning it was reported that Saudi Arabia will not participate in a production freeze if Iran refuses to do so. Iran has stated that they plan to boost their crude oil output to 4 million barrels daily before they will even consider participating in a production freeze. This led to a selloff in crude oil today. Despite the declines in crude oil the U.S. equity markets continued upward.

I am not bullish crude oil. If crude oil closes below the 36.15 level on a daily basis, I will get a sell signal on the daily chart. If I get this sell signal I would be looking to short crude oil on a bounce to take advantage of another pushdown. Crude oil has dropped about 5 dollars in only a week. Crude oil is now only about 10 dollars away from the 2016 low of 26.05.

On March 23rd I stated that with the rally in crude oil and the U.S. equity markets if was a long term investor I would be looking to sell any oil stocks such as XOM (Exxon), CVX (Chevron), MRO (Marathon Oil), and SWN (Southwestern Energy). These stocks have now begun declining sharply from their highs.

Crude oil was down 1.48 (3.88%) today, closing at 36.63.

Follow Steve on Twitter at @stevekalayjian

Gold

There is a beautiful pattern setting up on the weekly chart in gold. If I was a long term investor I would be looking to buy gold and gold stocks if gold pulls into the 1,175-1,200 range. The gold stocks I am looking at include ABX (Barrick Gold), AUY (Yamana Gold), GDX (Gold Miners ETF), GG (Goldcorp), KGC (Kinross Gold), and SLV (Silver ETF). I am looking for the gold stocks to push down, fill some of the gaps below, and get to a significant oversold condition on the weekly charts. I expect gold to start pushing up in the next 5-10 weeks as the U.S. equity markets decline.

Gold was down 10.90 (0.88%) today, closing at 1223.60.

Follow Steve on Twitter at @stevekalayjian

Please see the Steve Kalayjian’s The Kalayjian Report and Newsletter Disclaimers and Disclosures

Copyright 2016 KnowVera Research

About The Author