Waiting for Tomorrow’s Jobs Number

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

The U.S. equity markets are somewhat overbought on the daily and weekly charts. I got a buy signal on the weekly chart for the exchange traded fund SPY when it closed at 202.76 on March 11th. Unless a crazy event happens I will not get a sell signal on the weekly chart for SPY only three weeks after getting a buy signal on the weekly chart. I am looking to see if the U.S. equity markets can pull in to a somewhat oversold condition. Over the next two months I expect opportunities to enter and exit the U.S. equity markets using exchange traded funds. The exchange traded funds which mirror the U.S. equity markets include DIA (Dow Jones Industrial Average), QQQ (NASDAQ Composite), SPY (S&P 500), and IWM (Russell 2000).

In April-May of 2015 I called the market top when I stated that if the Dow Jones Industrial Average entered the 18,100-18,400 range I would be looking to sell any long positions and establish short positions. I stated that it was not a time to be complacent and the Dow Jones Industrial Average traded down to the 15,371 level that summer. Once again this is not a time to be complacent. 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 would be looking to be on the sidelines, 100% in cash. This is a great opportunity to be exiting any long positions as there is significant risk below. There is no economic growth, Europe is fighting a deflationary scenario, Japan is in a deflationary scenario, and the U.S. equity markets have not rallied based on a strong economic data or strong corporate earnings. I expect a reoccurrence of 2015 with the Dow Jones Industrial Average topping out sometime in the April-May time period before declining to much lower levels during the summer. There are now four gaps below on the daily chart for SPY. These gaps go down to the 182.86 level, equivalent to approximately the 15,500 level on the Dow Jones Industrial Average. I expect these gaps below to get filled by late summer. Once these gaps are filled I believe the U.S. equity markets could possibly push down to new lows for 2016.

After trading down to a 2016 low of 14.78 on February 11th DB (Deutsche Bank) rallied up to a high of 20.70 on March 14th. I am seeing a divergence with DB steadily declining from that high and closing at 16.94 today as the U.S. equity markets continue to push upward. I believe DB may be showing some of the underlying problems which could result in a significant selloff in the U.S. equity markets in the months ahead. This is something to keep an eye on.

I am not a supporter of the analyst ratings given to stocks. Yesterday a member firm analyst upgraded IBM (International Business Machines Corporation) from a market perform to an outperform. I do not understand how anyone can make money following these analyst ratings. The U.S. equity markets have rallied over the past six weeks and I do not see how these analyst ratings could have helped one capture this move up.

Today was the end of the first quarter of 2016. In the first quarter the Dow Jones Industrial was up about 1.50%, the NASDAQ Composite was down about 2.75%, the S&P 500 was up about 0.75%, and the Russell 2000 was down about 1.90%. To end the quarter the Dow Jones Industrial Average has rallied about 14% off of the lows, fueled by central bank intervention.

Today the Dow Jones Industrial Average closed down 31.57 (0.18%) at 17,685.09, the NASDAQ Composite closed up 0.55 (0.01%) at 4,869.85, the S&P 500 closed down 4.21 (0.20%) at 2,059.74, and the Russell 2000 closed up 3.59 (0.32%) at 1,114.03.

Long Term Signals:

OPK (American International Group): Sell Signal on Daily Chart (03/31/16)
Entries: 10.22 (filled), 10.54 (filled), 10.85
Stop: 11.29
Status: Covered 2 at average price of 10.20 (+0.18 per entry)

Follow Steve on Twitter at @stevekalayjian

Crude Oil

I am currently on the sidelines in crude oil.

If crude oil closes below the 36.15 level on a daily basis, I will get a sell signal on the daily chart. If I get this sell signal I would be looking to short crude oil on a bounce to take advantage of another pushdown to the high 30s. I believe there is a 70% chance that the 2016 low of 26.05 will get broken sometime this year. If this low is broken I would then be looking for a push down to the low 20s. I believe a pushdown to these levels could cause panic in the crude oil markets, prompting a cut in production by 5-10%.

Crude oil was down 0.19 (0.50%) today, closing at 38.11.

Follow Steve on Twitter at @stevekalayjian

Gold

I am currently on the sidelines in gold.

I have been very bullish gold since I got a buy signal on the weekly chart with the close above the 1,131.30 level on February 5th. There is a beautiful pattern setting up on the weekly chart in gold. I am waiting for March’s employment situation to be released tomorrow at 8:30am before I would be looking to enter the gold market.

I respectfully disagreed back in December of 2015 when the Federal Open Market Committee (FOMC) stated that they were forecasting 4 rate hikes in 2016. At the March meeting the FOMC announced that they are now only forecasting 2 rate hikes in 2016. I do not believe the FOMC will raise the federal funds rate until possibly after the November U.S. presidential election. There is a chance that the FOMC could look to raise the federal funds rate after the election depending on the economic data. An increase in the federal funds rate would cause a decline in gold. I expect gold to be in the clear at least until after the election. I believe there is a very good chance that gold will hit the 1,300 level sometime in the second quarter of 2016.

Gold was up 7.90 (0.64%) today, closing at 1234.50.

Follow Steve on Twitter at @stevekalayjian

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