U.S. Equity Markets Overbought

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 think this is a great opportunity to scale out, go to cash, and wait for opportunities to reenter the U.S. equity markets in the months ahead. After this monstrous rally it is not the time to be complacent. Going forward I am looking for a pullback in the U.S. equity markets to an oversold condition on the daily charts, possibly bringing the Dow Jones Industrial Average into the 16,900-17,200 range where I would be looking to buy 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). I expect the U.S. equity markets to pull in and then push back up 2-3 times in the next 4-12 weeks before exhausting itself. There is a possibility that we see a double top in the Dow Jones Industrial Average at the 18,300 level; however if it were to push up that high it would be a gift.

Nothing has changed here. World economies are still very sluggish and there is no economic growth. The Dow Jones Industrial Average has rallied from the 16,200 level to the 17,600 level because of central bank intervention and short covering. It has not rallied due to a strong worldwide economic situation. If world economies were growing the Bank of Japan would not have gone to negative interest rates and the European Central Bank (ECB) would not have extended their quantitative easing program past March 2017 or increased their bond purchasing program. After the December 2015 meeting the Federal Open Market Committee stated that they were forecasting four rate hikes in 2016. On Wednesday the FOMC announced that they are now only forecasting 2 rate hikes in 2016. If the U.S. economy was growing and had a strong GDP the FOMC would be raising the federal funds rate instead of decreasing the amount of rate hikes they forecast in 2016. Many are calling for a rate hike at the June meeting. I do not expect any hike in the federal funds rate until after the presidential election. I believe the FOMC may choose to hike the federal funds rate once at the end of the year in order to save face.

The U.S. equity markets are extremely overbought on both the daily and weekly charts. The S&P 500 futures are about 57 points above the 10-bar moving average on the daily chart. A distance greater than 50 points signals an overbought condition. I have a buy signal on both the daily and weekly charts for the U.S. equity markets. I expect this rally to last 4-12 weeks bringing the Dow Jones Industrial Average to a top in the April-May time period, possibly above the 18,000 level. In April-May of 2015 I called the market top when I stated that if the Dow Jones Industrial Average got into the 18,100-18,400 range I would be looking to sell any long positions and establish short positions. The Dow Jones Industrial Average got up to the 18,300 level and I then stated I was looking for a move down to the 16,100 range sometime in the summer of 2015 and the Dow Jones Industrial Average traded down to a low of 15,371. I expect the exact same scenario to occur in 2016, with significantly lower prices coming by the end of the summer.

With today’s gains the Dow Jones Industrial Average has now closed up for six days in a row. The Dow Jones Industrial Average closed up 120.81 (0.69%) at 17,602.30, the NASDAQ Composite closed up 20.66 (0.43%) at 4,795.65, the S&P 500 closed up 8.97 (0.44%) at 2,049.56, and the Russell 2000 closed up 10.42 (0.95%) at 1,101.67.

Long Term Signals:

NQ (NQ Mobile): Sell Signal on Daily Chart (03/16/16)
Entries: 3.99, 4.14, 4.29
Stop: 4.49
Status: No Fills

TWTR (Twitter): Sell Signal on Daily Chart (03/16/16)
Entries: 16.89 (filled), 17.59, 18.29
Stop: 19.27
Status: Short at 16.89

BBD (Banco Bradesco S.A.): Sell Signal on Daily Chart (03/16/16)
Entries: Gapped up, filled all three entries at 7.33
Stop: 8.00
Status: Short 3 at average price of 7.33

VRTX (Vertex Pharmaceuticals): Sell Signal on Daily Chart (03/17/16)
Entries: 82.82 (filled), 85.32, 88.32
Stop: 92.52
Status: Short at 82.82

VALE (Vale S.A.): Buy Signal on Daily Chart (03/18/16)
Entries: 4.04, 3.87, 3.70
Stop: 3.47
Status: No Fills

NKE (Nike): Buy Signal on Daily Chart (03/18/16)
Entries: 62.24, 61.31, 60.37
Stop: 59.07
Status: No Fills

ODP (Office Depot): Buy Signal on Daily Chart (03/18/16)
Entries: 5.68 (filled), 5.53, 5.39
Stop: 5.19
Status: Long at 5.68

ITUB (Itaú Unibanco Holding S.A.): Buy Signal on Daily Chart (03/18/16)
Entries: 8.76, 8.54, 8.32
Stop: 8.02
Status: No Fills

BMY (Bristol-Myers Squibb): Sell Signal on Daily Chart (03/18/16)
Entries: 62.48 (filled), 63.49, 64.51
Stop: 65.93
Status: Short at 62.48

S (Sprint): Sell Signal on Daily Chart (03/18/16)
Entries: 3.53, 3.67, 3.81
Stop: 4.01
Status: No Fills

BMRN (BioMarin Pharmaceutical): Sell Signal on Daily Chart (03/18/16)
Entries: 80.38 (filled), 83.41, 86.43
Stop: 90.67
Status: Short at 80.38

Follow Steve on Twitter at @stevekalayjian

Crude Oil

If crude oil gets up into the 43-48 range I would be looking to short crude oil using a 51 stop.

I am now looking at the May futures contract for crude oil. Crude oil has a significant amount of overhead resistance in the 39-45 range. When the U.S. equity markets start to break I believe crude oil will head back down. There is no reason for crude oil prices to be this high. Fundamentally nothing has changed for crude oil. 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 possible production freeze or cut. Shale producers will be pumping out 9 million barrels of crude oil daily. 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 0.54 (1.30%) today, closing at 41.13.

Follow Steve on Twitter at @stevekalayjian

Gold

I am currently on the sidelines in gold.

Gold is in a very bullish trend currently. I am looking for a pullback in gold on the daily charts where I would be looking to buy gold and the gold stocks. The gold stocks I am looking at include ABX (Barrick Gold), AUY (Yamana Gold), KGC (Kinross Gold), and NEM (Newmont Mining). On March 15th gold traded down to a low of 1226.00. I had been looking to buy gold in the 1,195-1,215 but I took that range off the table going into this week’s FOMC meeting. I expect the next push up in gold to bring it to the 1,280 level and possibly up to the 1,300 level. I expect gold to be in the clear at least until the June FOMC meeting.

Gold was down 2.60 (0.21%) today, closing at 1256.00.

Follow Steve on Twitter at @stevekalayjian

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