Waiting for Short Setup in U.S. Equity Markets on Daily and Weekly Charts

U.S. Equity Markets

I am currently on the sidelines for the U.S. equity markets and I have a sell signal on the weekly charts. I am waiting to see if this rally continues into next week where I think there would be great opportunities in the exchange traded funds which mirror the U.S. equity markets. These exchange traded funds include SPY (mirrors S&P 500), DIA (mirrors Dow Jones Industrial Average), QQQ (mirrors NASDAQ-100), and IWM (mirrors Russell 2000).

I am looking for the U.S. equity markets to have some type of a bounce here that should last another 1-4 more days. I expect backing and filling as the U.S. equity markets push up, working off the oversold condition to an overbought condition on the weekly charts before heading back now. I expect the Dow Jones Industrial Average to potentially get up to the 16600-17100 range but I am waiting for the pattern to be complete before I give out my ranges for the U.S. equity markets.

Today European Central Bank (ECB) president Mario Draghi put recession fears aside stating that major central banks would pursue divergent policies for some time, showing that the ECB is ready to provide additional stimulus to the European economy. This positive sentiment contributed to the U.S. equity markets rallying today. There is a worldwide economic slowdown occurring but I am not yet in the camp calling for a recession. By definition a recession is “generally identified by a fall in GDP in two successive quarters.”

In my last update, released January 18th, I stated that I was looking for the S&P 500 futures to make a short term bottom in the 1810-1850 range, providing an opportunity for an aggressive long entry. On January 20th the S&P futures traded down to 1804.25 and then sharply rallied to a high of 1902.25 today before closing at 1899.25. When the S&P 500 futures traded down to 1804.25 it was 142 points below the 10 bar moving average on the daily chart, an extreme oversold condition. The U.S. equity markets rallied from this extreme oversold condition. On January 20th the Dow Jones Industrial Average traded down to a low of 15450.56 and then sharply rallied to a high of 16136.79 today before closing at 16093.51.

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Crude Oil

I am not bullish here on crude oil. If crude oil gets into the 36-40 range I would be looking to short crude oil using a 42 stop. If crude oil works off the oversold condition and gets into this range, crude oil should get to an extreme overbought condition on the weekly charts.

On January 20th crude oil traded down to 27.56 and everyone was screaming that crude oil was going all the way down to 20 dollars a barrel. Today crude oil was up over 8% trading as high as 32.30 before settling at the 32.25 level. Crude oil has rallied over $4.50 from the January 20th low.

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Gold

I do not see any clear pattern in gold and I am on the sidelines waiting to see what happens next week.

On January 14th gold traded down to a low of 1071.10 before bouncing up to a high of 1109.90 on January 20th. Today gold closed at 1098.20.

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Baltic Dry Index and the Slowing of Global Trade Growth

On January 14th the Financial Times released an article about how the Baltic Dry Index is showing us signs of changes in the global economy. “Shipping’s globalization woes”, written by Gillian Tett, can be read here: http://on.ft.com/1PtUgoG

The Baltic Dry Index measures the cost of shipping raw materials across the globe. The article shows that due to an oversupply of shipping vessels in a time where global trade growth has slowed; the cost of shipping raw materials across the globe is the lowest it has been since records of the Baltic Dry Index began in 1985.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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