Real Economic Problems Exist
If the Dow Jones Industrial Average pushes up into the 17,400-17,900 range I would be looking to take profits and sell any long positions in equities, mutual funds, and/or exchange traded funds. If the Dow Jones Industrial Average continues higher through this range to a significant overbought condition I will be providing a range of where I would be looking to:
1. Buy the exchange traded funds which move in the opposite direction of the U.S. equity markets. These exchange traded funds include DOG (Dow Jones Industrial Average), PSQ (NASDAQ Composite), SH (S&P 500), and RWM (Russell 2000).
2. Short the exchange traded funds which mirror the U.S. equity markets. These exchange traded funds include DIA (Dow Jones Industrial Average), QQQ (NASDAQ Composite), SPY (S&P 500), and IWM (Russell 2000).
The U.S. equity markets are extremely overbought on the weekly charts. There is a gap above on the weekly chart for the exchange traded fund SPY up to the 203.86 level. I expect this gap to be filled before the U.S. equity markets head back down. If this gap is filled I will get a buy signal on the U.S. equity markets on the weekly charts. I am not worried about this buy signal as there is a significant amount of overhead resistance on the Dow Jones Industrial Average in the 17,400-18,300 range.
There are currently three gaps below on the daily chart for the exchange traded fund SPY. These gaps go down to the 182.86 level, equivalent to approximately the 15,500 level on the Dow Jones Industrial Average. On the weekly chart for SPY there is a gap below down to the 186.87 level, equivalent to approximately the 15,900 level on the Dow Jones Industrial Average. I believe these gaps below will get filled by sometime this summer; however I do think there is a chance the U.S. equity markets will push up before heading back down. Once filled I believe there is a good chance the U.S. equity markets will continue pushing down to new lows for 2016.
At 7:45am it was announced that the European Central Bank (EBC) would be enacting additional quantitative easing measures. The ECB decided to extend their quantitative easing program past the March 2017 deadline. This quantitative easing program began in 2015 with the goal of boosting the economy and increasing GDP by 1%. Neither of these goals have been met. They also decided to increase their bond purchasing program from 60 billion euros to 80 billion euros. In addition the deposit rate was cut further from negative 0.3% to negative 0.4%. Following this announcement the EURUSD dropped to the 1.0822 level. At 8:30am Mario Draghi held a press conference regarding the ECB’s decisions. At this conference he stated that rates would remain low for an extended period of time and that he did not expect to cut rates further. The EURUSD exploded in response to this statement, rallying almost 400 pips up to the 1.1218 level. Typically rate cuts will devalue the currency; however the statement regarding no future cuts caused the EURUSD to rally.
We are seeing central banks worldwide panicking to boost their economies. These quantitative easing measures have not been effective. We are seeing a worldwide economic slowdown and Chinese exports were down 25.4% in February. I am not calling for a U.S. recession in 2016, however I do think there is the possibility of a recession in 2017. U.S. fourth-quarter GDP was last reported at a mere 1.0%. On Tuesday, March 15th the Federal Open Market Committee (FOMC) will meet. On Wednesday, March 16th the FOMC will announce whether they decided to raise the federal funds rate. I believe there is a 100% chance that the FOMC will not raise the federal funds rate in this meeting.
At one point today the Dow Jones Industrial Average was down over 170 points. At around 2:45pm I got an intraday buy signal on the U.S. equity markets, rallying into the end of the day and closing well off the lows. The Dow Jones Industrial Average closed down 5.23 (0.03%) at 16.995.13, the NASDAQ Composite closed down 12.22 (0.26%) at 4,662.16, the S&P 500 closed up 0.31 (0.02%) at 1,989.57, and the Russell-2000 closed down 8.78 (0.82%) at 1,063.99.
Long Term Signals:
FTR (Frontier Communications): Sell Signal on Daily Chart (03/10/16)
Entries: 5.30 (filled), 5.43, 5.58
Status: Short at 5.30
GRPN (Groupon): Sell Signal on Daily Chart (03/10/16)
Entries: 4.27, 4.43, 4.59
Status: No Fills