U.S. Equity Markets Flat, Gold Down on Federal Funds Rate Hike Fears

U.S. Equity Markets

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

I got a buy signal on the weekly chart for the exchange traded fund SPY when it closed at 202.76 on March 11th. Since I got that buy signal I have been looking for a pullback 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. On April 7ththe Dow Jones Industrial Average traded down to a low of 17,484.23. With JPM (JPMorgan Chase & Co.) beating earnings expectations and the crude oil news this week the Dow Jones Industrial Average has now pushed above the 17,900 level. Although banks have been beating earnings expectations their earnings are not great.With the weakness in earnings over the past three quarters analysts have lowered their expectations to the point where it is not difficult for major companies to beat.

Recently I have been hearing very bullish comments regarding the U.S. equity markets recently and analysts are upping their targets. The Dow Jones Industrial average has now rallied over 15% from the February 11th low of 15,503.01. This rally has not been fueled by strong economic numbers. It has been fueled by central bank intervention and short covering. When the Federal Reserve says that they are data dependent in regards to hikes in the federal funds rate they are really saying that they are dependent on the state of the U.S. equity markets. Their primary focus is on keeping asset prices high and supporting the equity markets.

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 continues higher past the 18,000 level I would potentially be looking to short the U.S. equity markets. Now is not a time to be complacent. The U.S. equity markets are extremely overbought on the weekly charts. 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.

The Dow Jones Industrial Average closed up 18.15 (0.10%) at 17,926.43, the NASDAQ Composite closed down 1.53 (0.03%) at 4,945.89, the S&P 500 closed up 0.36 (0.02%) at 2,082.78, and the Russell 2000 closed down 1.34 (0.12%) at 1,128.59.

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Kalayjian Signals

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

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: Covered at 10.54 (+0.00)

TDW (Tidewater Inc.): Buy Signal on Daily Chart (04/13/16)
Entries: 7.48 (filled), 7.18 (filled)
Stop: 5.78
Status: Sold at average price of 7.33 (+0.00 per entry)

CHK (Chesapeake Energy Corporation): Buy Signal on Daily Chart (04/13/16)
Entries: 5.74 (filled), 5.43, 5.12
Stop: 4.70
Status: Sold at 12.93 (+0.19)

AVX (AVX Corp.): Buy Signal on Daily Chart (04/14/16)
Entries: 12.51 (filled), 12.35, 12.18
Stop: 11.96
Status: Long at 12.51

FCX (Freeport-McMoRan Inc.): Buy Signal on Daily Chart (04/14/16)
Entries: 10.38, 9.93, 9.49
Stop: 8.87
Status: No Fills

SAN (Banco Santander, S.A.): Buy Signal on Daily Chart (04/14/16)
Entries: 4.47, 4.37, 4.28
Stop: 4.16
Status: No Fills

BK (The Bank of New York Mellon Corporation): Buy Signal on Daily Chart (04/14/16)
Entries: 37.23, 36.68, 36.13
Stop: 35.36
Status: No Fills

FNFG (First Niagara Financial Group Inc.): Buy Signal on Daily Chart (04/14/16)
Entries: 9.90, 9.75, 9.60
Stop: 9.39
Status: No Fills

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Crude Oil

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.

Around 15 major oil producers including both OPEC and non-OPEC producers are expected to attend a meeting in Doha on April 17th. Saudi Arabia wants to produce 15-19 million barrels of crude oil daily. 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.

Crude oil was down 0.10 (0.24%) today, closing at 41.45.

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Gold

I would be looking to buy gold in the 1,178-1,198 range using a 1,165 stop.

I am also looking for the gold stocks to pull in to an oversold condition on the daily charts. The gold stocks I am looking at include ABX (Barrick Gold Corporation), AU (AngloGold Ashanti Ltd.), AUY (Yamana Gold, Inc.), GDX (Market Vectors Gold Miners ETF), GFI (Gold Fields Ltd.), GG (Goldcorp Inc.), GLD (SPDR Gold Shares), KGC (Kinross Gold Corporation), NEM (Newmont Mining Corporation) and SLV (iShares Silver Trust).

Gold was down today due to the strength of the U.S. dollar and federal funds rate hike fears. Typically a rise in the U.S. dollar results in a decline in commodity prices. Many Federal Reserve Officials are now talking about 2-3 federal funds rate hikes in 2016. I do not believe the FOMC will choose to raise the federal funds rate at the April meeting. The Bank of Japan has gone to negative rates. The European Central Bank is worried that there is no growth resulting from their stimulus plans and are almost in a deflationary environment. With the current worldwide economic situation I do not see how the FOMC will look to raise the federal funds rate. I do not expect a hike in the federal funds rate any time before the November U.S. presidential election. I believe the FOMC may choose to raise the federal funds rate once towards the end of 2016.

Gold was down 14.80 (1.19%) today, closing at 1229.30.

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