OPEC Production Cut Rumor Pushes U.S. Equity Markets up from Day’s Lows

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

I am looking for the U.S. equity markets to get to a significant oversold condition. I am looking for the S&P 500 futures to push down another 80 points from here to the 1,740 level. At this level the S&P 500 futures would get to a significant oversold condition around 140 points below the 10-bar moving average on the daily charts, and the Dow Jones Industrial Average would enter the 14500-15000 range. If the Dow Jones Industrial Average pulls into the 14500-15000 range I would be looking to buy the exchange traded funds which mirror the U.S. equity markets. These exchange traded funds include SPY (mirrors the S&P 500), DIA (mirrors the Dow Jones Industrial Average), IWM (mirrors the Russell 2000), and QQQ (mirrors the NASDAQ-Composite). If the Dow Jones Industrial Average pulls into this range the U.S. equity markets should get to a significantly oversold condition where I would be looking to take advantage of a snapback rally for a trade only.

We saw heavy selling again in the U.S. equity markets. At one point today the Dow Jones Industrial Average was down around 400 points. Crude oil was a big catalyst for the heavy selling in the U.S. equity markets, printing a new low for 2016 of 26.05.

At 10:00am Federal Reserve Chair Janet Yellen went before the senate and gave a prepared testimony on the state of the economy. Following this testimony Yellen answered questions. Yellen stated that the outlook for the U.S. economy hasn’t shifted enough to warrant a rate cut. She stressed that the Federal Reserve is not on a “pre-set path” however she still expects to gradually raise interest rates this year. Yellen was optimistic about the strong job creation, rising wages, and household spending. She acknowledged that with the weakening global economy and decline in the equity markets financial conditions are tightening faster than the Federal Reserve wants. In regards to negative U.S. rates Yellen said the Federal Reserve is studying the idea. According to the CME FedWatch there is only an 8% chance for a rate hike in 2016 and a 0% chance of a rate hike in March when the FOMC meets. The declines in the U.S. equity markets continued in response to Yellen’s hawkish tone.

Today the S&P 500 futures made a new 52 week low of 1,802.50. At 2:40 the U.S. equity markets exploded with the S&P 500 futures trading up to the 1,833 level following the release of a rumor that the UAE energy minister said OPEC is ready to cooperate on a production cut.

The Dow Jones Industrial Average closed down 254.56 (1.60%) at 15,660.18, the NASDAQ Composite closed down 16.76 (0.39%) at 4,266.84, the S&P 500 closed down 22.78 (1.23%) at 1,829.08, and the Russell-2000 down 9.77 (1.01%) at 953.72.

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Crude Oil

I am currently on the sidelines in crude oil.

Today crude oil made a new low for 2016 of 26.05. If crude oil makes a new low in the 19-22 range I would be looking to buy crude oil and the oil stocks. I would then be looking for a bounce in crude oil and the oil stocks from the significant oversold condition. If crude oil enters this range I expect OPEC to call an emergency meeting and cut production, pushing back up crude oil prices. I would expect this push up to be short lived as there is a significant oversupply of crude oil.

At around 2:30 it was reported by the Wall Street Journal that the UAE Energy Minister said OPEC is ready to cooperate on a production cut. It is unclear whether or not there is any truth behind this report. If there is truth to this rumor we should see a short term bottom in crude oil and crude oil prices should push up along with the U.S. equity markets. Following this report crude oil exploded from the new low for 2016 of 26.05, trading up above the 27 level. Crude oil was down .03 (0.11%) today, closing at 27.30.

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Gold

I am currently on the sidelines in gold.

I have a buy signal on gold on both the daily and weekly charts. Gold is now extremely overbought on the daily chart. I am looking for a significant pullback in gold to an extreme oversold condition where I would be looking to buy gold and the gold stocks such as ABX (Barrick Gold), NEM (Newmont Mining), GLD (Gold ETF), KGC (Kinross Gold), and AUY (Yamana Gold).

Gold traded up to a high of 1,263.90 today before closing up 49.60 (4.14%) at 1,247. Gold has rallied over 100 dollars from the 1,131.30 level where I got the buy signal in gold on the weekly chart. Again today I saw a divergence between gold and the gold stocks. When gold was making new highs today the gold stocks such as ABX (Barrick Gold) and NEM (Newmont Mining) did not make new highs.

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AUDUSD

I am on the sidelines in AUDUSD.

I would have looked to buy AUDUSD when it got below the 0.7030 level. AUDUSD has bounced nicely from that level.

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EURUSD

If EURUSD closes above 1.1221 tomorrow I will get a buy signal on the weekly chart. If I get this buy signal I would be looking to buy EURUSD in the 1.0850-1.1200 range.

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GBPUSD

I would be looking to short GBPUSD in the 1.4650-1.5000 range.

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USDCAD

I would be looking to short USDCAD in the 1.4150-1.4500 range.

USDCAD should move in the opposite direction of crude oil. If crude oil pushes up USDCAD should push down.

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USDJPY

If the S&P futures get down to the 1,740 level and the Dow Jones Industrial Average enters the 14,500-15,000 range USDJPY should enter the 101.00-106.00 range where I would be look to buy USDJPY. If USDJPY pushes up into the 119.50-123.00 range I would be looking to short USDJPY.

USDJPY is down almost 1000 pips from its high following the Bank of Japan’s decision to adopt negative interest rates.

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