Waiting on FOMC Announcement Tomorrow

U.S. Equity Markets

If the Dow Jones Industrial Average pushes up into the 17,400-17,900 range I would be looking to take profits and sell any long positions in equities, mutual funds, and/or exchange traded funds. If the U.S. equity markets continue straight up through this range to a significant overbought condition I will be providing a range for a trade only where I would be looking to:

1. Buy the exchange traded funds which move in the opposite direction of the U.S. equity markets. These exchange traded funds include DOG (Dow Jones Industrial Average), PSQ (NASDAQ Composite), SH (S&P 500), and RWM (Russell 2000).

2. Short 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).

On Friday I got a buy signal on the weekly charts for the U.S. equity markets. I expect this buy signal to last 4-10 weeks. I expect the Dow Jones Industrial Average to top out in the April/May time period before lower prices come in the summer. The same situation that occurred in 2015 when the Dow Jones Industrial Average got up to the 18,300 level in April-May before trading down to a low of 15,371 in the summer.

The U.S. equity markets are extremely overbought on both the daily and weekly charts and there is a staggering amount of overhead resistance on the weekly chart for the Dow Jones Industrial average in the 17,400-18,300 range. There is a gap above on the weekly chart for SPY up to the 203.87 level. I expect this gap to be filled before the U.S. equity markets head back down. There are 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 to be filled by the middle-end of the summer.

At 8:30am this morning the Producer Price Index (PPI) and Retail Sales for February were reported in line with expectations. The PPI decreased by 0.2% from the prior month and Retail Sales decreased by 0.1% from the prior month. These numbers are not signaling a strong U.S. economy. Equity markets are heavily relying on central bank intervention to support them. If the equity markets and world economies were strong there would be no need for this extent of central bank intervention. This rally of over 1000 points in the Dow Jones Industrial Average has been fueled by central bank intervention including the Bank of Japan’s decision to go to negative interest rates and the European Central Bank’s decision to enact additional quantitative easing measures.

Tomorrow at 2:00pm the Federal Open Market Committee (FOMC) will announce whether they decided to raise the federal funds rate at their March meeting. I do not believe there is any way they will decide to raise interest rates in the March meeting. I do believe the FOMC may choose to raise the federal funds rate one more time in 2016 but not until after the presidential election. At 2:30pm the FOMC will hold a press conference regarding this meeting.

There was a significant amount of short covering today in anticipation of tomorrow’s FOMC announcement. Soon after the U.S. equity markets opened this morning the Dow Jones Industrial Average was down over 100 points. As the day progressed the U.S. equity markets began drifting higher off the lows. At around 1:45pm I got an intraday buy signal on the S&P 500 futures and the Dow Jones Industrial Average and the U.S. equity markets continued to drift upward into the close.

The Dow Jones Industrial Average closed up 22.40 (0.13%) at 17,251.53, the NASDAQ Composite closed down 21.61 (0.45%) at 4,728.67, the S&P 500 closed down 3.71 (0.18%) at 2,015.93, and the Russell 2000 closed down 17.58 (1.62%) at 1,066.67.

Long Term Signals:

FTR (Frontier Communications): Sell Signal on Daily Chart (03/10/16)
Entries: 5.30 (filled), 5.43, 5.58
Stop: 5.76
Status: Covered at 5.16 (+0.14)

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Crude Oil

I am currently on the sidelines in 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. When the U.S. equity markets start to break I do believe we will see crude oil head back down. I expect crude oil to make a new low in the next 3-4 months. On February 11th crude oil traded down to the 2016 low of 26.05. If crude oil does make a new low I expect there to be good buying opportunities in the oil sector.

I stated that crude oil was running into a brick wall in the 38-39 range. At one point today crude oil traded below the 36 level. At 4:30pm the American Petroleum Institute (API) report showed an increase in crude oil inventories by 3.2 million barrels from the prior week, higher than the expected increase of 1.5 million barrels. Crude oil pushed up sharply following the release of this report.

Crude oil was down 0.65 (1.74%) today, closing at 36.72.

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Gold

I am currently on the sidelines in gold.

I am waiting to see what the FOMC says in their announcement and press release tomorrow before I would be looking to take a position in gold and the gold stocks. I want to see whether their language is dovish or hawkish. I do not expect hawkish language from the FOMC as just last week the ECB decided to extend their quantitative easing program past the March 2017 deadline, increase their bond purchasing program from 60 billion euros to 80 billion euros, and cut their interest rates further. It is possible that Janet Yellen will talk about hiking the federal funds rate sometime towards the end of the year. The FOMC will say that they are data dependent when considering hiking the federal funds rate; however the data is so bad that I do not understand how they can even think about hiking rates.

Gold was down 3.20 (0.26%) today, closing at 1232.80.

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