Weakness in China’s Manufacturing Sector Cannot Hold Down U.S. Equity Markets

U.S. Equity Markets

If the Dow Jones Industrial Average pushes up into the 16,750-17,250 range I would be looking to short the U.S. equity markets and exit any long positions. If the Dow Jones Industrial Average pulls back into the 15,500-16,000 range I would be looking to buy the U.S. equity markets.

I now have a buy signal on the daily chart for both FB (Facebook) and MSFT (Microsoft). Both companies released great earnings and I am expecting the pattern to setup on the daily charts for these names within the next 7 business days. I will be providing ranges of where I would look to buy FB (Facebook) and MSFT (Microsoft) in the next couple days.

Today we saw extreme volatility in the U.S. equity markets. Early today the Dow Jones Industrial Average was down over 100 points. This was largely in response to the economic news released overnight in China. In January the Chinese manufacturing sector contracted at its fastest pace since 2012. After seeing heavy selling in the morning, the U.S. equity markets started to stabilize, and at around 2:00pm I got a buy signal on the shorter times frames on the U.S. equity markets. Following this buy signal the U.S. equity markets pushed up into positive territory but started to sell off towards the close. At the close the NASDAQ-100 was up slightly while the other indices were down slightly. The NASDAQ-100 closed up 7.39 (0.17%) at 4,286.56, the S&P 500 closed down 0.86 (0.04%) at 1,939.38, the Dow Jones Industrial Average closed down 17.12 (0.10%) at 16,449.18, and the Russell 2000 closed down 2.99 (0.29%) at 1,032.39.

On January 20th the S&P 500 futures traded down to 1,804.25. At this low the S&P 500 futures were 142 points below the 10 bar moving average on the daily chart, an extreme oversold condition. Typically when the S&P futures are more than 50 handles points away from the 10-bar moving average on the daily chart it signals a significant overbought or oversold condition and the price tends to gravitate back towards the 10-bar moving average. Since that extreme oversold condition we have seen the S&P 500 futures rally about 130 points and the Dow Jones Industrial Average rally over 1200 points.

Follow Steve on Twitter at @stevekalayjian

Crude Oil

I would be looking to buy crude oil in the 24-28 range using a 22 stop. If crude oil gets into this range I believe we will see a short term bottom as it would most likely push OPEC to cut crude oil production, pushing crude oil prices back up.

Today crude oil closed down about 6% at 31.62, after no news was released by OPEC over the weekend regarding a cut in crude oil production.

Follow Steve on Twitter at @stevekalayjian

Gold

I am on the sidelines in gold, waiting for a pattern to set up on the daily chart.

I was looking to buy gold in the 1078-1090 range using a 1068 stop. On January 29th, gold traded down to a low of 1108.50 but never entered my range.

Gold was up over 11 dollars today, closing at 1128. Gold is telling us that the Federal Reserve is not going to raise interest rates in their next meeting in March or anytime soon. If gold closes above 1131.30 this Friday I will get a buy signal on the weekly chart. If I get this buy signal I will then have a buy signal on both the daily and weekly charts for gold and the next pullback should provide a great buying opportunity.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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