Waiting For a Clearer Direction in All Markets February 23rd, 2016

U.S. Equity Markets

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

I was looking for the U.S. equity markets to get to an extreme overbought condition. I stated that if the Dow Jones Industrial Average got into the 16,800-17,400 range that I would be looking to short the exchange traded funds which mirror the U.S. equity markets. Yesterday the Dow Jones Industrial Average traded up to a high of 16,664.24 before closing down 188.88 (1.14%) at 16,431.78 today.

I am waiting for the U.S. equity markets to get to an extreme oversold or an extreme overbought condition. At an extreme oversold condition I would be looking to buy the exchange traded funds which mirror the U.S. equity markets and at an extreme overbought condition I would be looking to short the exchange traded funds which mirror the U.S. equity markets. These exchange traded funds include DIA (mirrors Dow Jones Industrial Average), QQQ (mirrors NASDAQ Composite), SPY (mirrors S&P 500), and IWM (mirrors Russell-2000).

As I stated there are now four gaps below on the daily chart for the exchange traded fund SPY. These gaps go down to the 182.86 level, equivalent to the 15500 level on the Dow Jones Industrial Average. If the Dow Jones Industrial Average pushes down to this level I expect it to push down further and make new lows for 2016. On January 20th the Dow Jones Industrial Average traded down to the low for 2016 of 15450.56.

We saw heavy selling today in the U.S. equity markets. The Dow Jones Industrial Average closed down 188.88 (1.14%) at 16,431.78, the NASDAQ Composite closed down 67.02 (1.47%) at 4,503.58, the S&P 500 closed down 24.23 (1.25%) at 1,921.27, and the Russell-2000 closed down 9.59 (0.94%) at 1,012.15.

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Crude Oil

I am currently on the sidelines in crude oil.

We saw heavy selling in crude oil today with OPEC saying that they are not looking to cut crude oil production. Crude oil production is currently at extremely high levels and OPEC is only looking to freeze production. I am bearish crude oil. I do not expect OPEC to cut production until we see a significant move down in crude oil, possibly into the 18-22 range where I would be looking to buy crude oil and the oil stocks. If OPEC decides to cut production I would then expect to see an explosive rally in crude oil followed by a short covering rally, further fueling the move to the upside.

At 4:30pm the American Petroleum Institute (API) report showed an increase in crude oil inventories by 7.1 million barrels from the prior week, much higher than the expected increase of 3.0 million barrels. Crude oil dropped sharply following the release of this report.

Crude oil was down 1.98 (5.94%) today, closing at 31.37.

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Gold

I would be looking to buy gold in the 1,170-1,190 range using a 1,135 stop. If gold enters this range I would also be looking to buy the gold stocks NEM (Newmont Mining), ABX (Barrick Gold), GLD (Gold ETF), KGC (Kinross Gold), and AUY (Yamana Gold).

On February 5th I got a buy signal on gold on the weekly chart when it closed above the 1131.30 level. Gold rallied over $130 from that level trading up to a high for 2016 of 1263.90 on February 11th.

Gold was up 17.10 (1.42%) today, closing at 1226.00.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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