Weekly Sell Signal Confirmed, Expecting Huge Bounce in Equity Markets in Next 5-7 Days

Dow Jones Industrial Average and the U.S. Equity Indices

Today at 8:30am the employment situation for December was released. Unemployment remained at 5% while nonfarm payrolls came in at 292 thousand, well above the consensus 200 thousand. The motto today was good means bad. Although this was a good economic number the Federal Reserve may interpret this as a sign of the economy gaining steam. This interpretation would increase the likelihood of a rate increase in the first quarter. This spooked the market. Looking at the slowdown in China I believe the jobs number was an aberration. I do not think this number merits the Federal Reserve to even think about raising interest rates. The Chinese are devaluing their currency to make exports more attractive to foreign buyers and create more opportunities within their country.

There was very much volatility today. At one point today the Dow Jones Industrial Average was up about 100 points and then down about 75 points at around 10:30-11:00am before rallying and being unchanged on the day. At around 12:00 I got a sell signal and the Dow Jones Industrial Average started drifting lower and closed down 167 points. The Dow Jones Industrial Average was down over 1000 points this week. This is one of the worst starts to a New Year that I can remember.

I stated yesterday that if the S&P futures close below the 1956 level today I will have a sell signal on the weekly chart to mirror the sell signals on the daily charts which I got earlier this week. Today the S&P futures closed at 1914 well below 1956 and I now have sell signals on both the daily and weekly charts. The markets are extremely oversold here so I would not be looking to short them. I think there is a good chance in the next week or so for a very good snapback rally of possibly 300-500 points in the Dow Jones Industrial Average and 30-50 handles in the S&P futures. This rally could possibly provide a good opportunity to get short the Dow Jones Industrial Average, S&P 500, NASDAQ-100, and Russell 2000. On my weekly charts the trend algorithm will not go from negative to positive in only one week. I expect to continue seeing weakness.

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Gold

I stated I was looking to buy gold on a pullback into the 1080-1085 range. Today gold traded down to 1091.80. When the markets started to sell off this afternoon I started getting buy signals on the shorter time frames on gold. Gold took out the 1101 level and then traded 3-4 dollars higher after that. I am waiting for a pullback in gold to set up a long entry on the daily charts where I would look to buy.

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Crude Oil

Crude oil traded as high as 33.70 today before closing below 33. I believe if the market rallies next week to work off the oversold condition that there is a great chance crude oil will get into my target range of 35.50-37 where I would look to exit any long positions.

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Thank you,

Stephen Kalayjian
@stevekalayjian

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