Bullish Pattern Setting Up for U.S. Equity Markets on Daily Charts

U.S. Equity Markets If the Dow Jones Industrial Average pulls into the 17,200-17,400 range I would be looking to buy the exchange traded funds which mirror the U.S. equity markets for a trade only. These exchange traded funds include DIA (Dow Jones Industrial Average), QQQ (NASDAQ Composite), SPY (S&P 500), and IWM (Russell 2000). 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. This is a great opportunity to exit any long positions and be 100% in cash as there is significant risk below. Now is not a time to be complacent. This rally in the U.S. equity markets has been fueled by short covering and central bank intervention. World economies are slowing. If the equity markets and world economies were strong there would be no need for this extent of central bank intervention. The Bank of Japan has gone to negative interest rates. The European Central Bank (ECB) extended their quantitative easing program, increased their bond purchasing program, and lowered their rates. Most recently the Federal Open Market Committee (FOMC) decreased their forecast for the amount of federal funds rate hikes in 2016 from 4 to 2. On March 25th the third estimate of 2015 fourth-quarter GDP was reported at 1.4%. At 8:30am this morning the core PCE price index was reported at 1.7%, less than the Federal Reserve’s 2.0% inflation target. At 10:00am pending home sales for February were reported at 3.5%, stronger than the expected 1.5%. Although pending home sales were strong, the majority of the U.S. economic data is weak. Durable goods orders, existing home sales, and 2015 fourth-quarter GDP are not showing signs of significant economic growth. This Friday at 8:30am the employment situation for March will be released. February’s employment situation showed an increased in nonfarm payrolls of 242,000 thousand. This seemed like a good number; however the jobs being created were mostly minimum wage jobs. There is significant amount of overhead resistance in the U.S. equity markets. Going forward I anticipate backing and filling in the U.S. equity markets with the Dow Jones Industrial Average exhausting itself in the 17,400-18,300 range, reaching a top sometime in the April-May time period. I expect the same situation that occurred in 2015 to occur in 2016 with the Dow Jones Industrial Average topping out in the April-May time period followed by a move down to significantly lower prices sometime in the summer. On this move down I expect the three gaps below on the daily chart for SPY to be filled. These gaps go down to the 182.86 level, equivalent to approximately the 15,500 level on the Dow Jones Industrial Average. Once these gaps are filled I believe the U.S. equity markets could possibly push down to new lows for 2016. The Dow Jones Industrial Average closed up 19.66 (0.11%) at 17,535.39, the NASDAQ Composite closed down 6.72 (0.14%) at 4,766.79, the S&P 500 closed up 1.11 (0.05%) at 2,037.05, and the Russell 2000 closed up 0.69 (0.06%) at 1,080.23. Long Term Signals: ITUB (Itaú Unibanco Holding S.A.): Buy Signal on Daily Chart (03/18/16) Entries: 8.76 (filled), 8.54 (filled) Stop: 8.02 Status: Sold 2 at average price of 8.76 (+0.11 per entry) S (Sprint): Sell Signal on Daily Chart (03/18/16) Entries: 3.53, 3.67, 3.81 Stop: 4.01 Status: No Fills AIG (American International Group): Buy Signal on Daily Chart (03/21/16) Entries: 52.16, 51.39 Stop: 50.32 Status: No Fills RIG (Transocean Ltd.): Sell Signal on Daily Chart (03/22/16) Entries: 11.03, 11.58, 12.05 Stop: 12.75 Status: No Fills ABX (Barrick Gold): Sell Signal on Daily Chart (03/24/16) Entries: 13.68 (filled), 14.04, 14.43 Stop: 14.97 Status: Short at 13.68 TCK (Teck Resources Limited): Sell Signal on Daily Chart (03/24/16) Entries: 7.64, 7.98, 8.32 Stop: 8.79 Status: No Fills Follow Steve on Twitter at @stevekalayjian Crude Oil I would be looking to short crude oil in the 41-47 range using a 50 stop. Crude oil rallied from the 2016 low of 26.05 on February 11th up to a high of 42.49 on March 18th on the May contract. This rally has been fueled by short covering and a declining dollar. This rally in crude oil has correlated with the rally in the U.S. equity markets. Fundamentally nothing has changed for crude oil. OPEC is producing 19 million barrels daily, shale producers are pumping out 8-9 million barrels daily, and Iran is boosting their daily output to 4 million barrels. Crude oil inventories are at a record high (over one billion barrels worldwide) and are increasing further with production continuing to outpace demand. Going forward I expect the same situation to occur in crude oil as I expect to occur in the U.S. equity markets. I expect to see declining crude oil prices in the months ahead, possibly pushing down to new lows for 2016. If crude oil pushes down to new lows for 2016 I expect OPEC to then look to cut production. Crude oil was down 0.29 (0.73%) today, closing at 39.30. Follow Steve on Twitter at @stevekalayjian Gold I would be looking to buy gold in the 1,180-1,200 range using a 1,170 stop. Gold is pulling in to an oversold condition, setting up a nice pattern on the weekly chart. I am expecting gold to pull in if the U.S. equity markets push higher. Once the U.S. equity markets reach a top and start to decline I expect gold to be used as a safe haven and push back up. On February 5th I got a buy signal on the weekly chart for gold with the close above the 1,131.30 level. Gold rallied over 150 points from where I got the buy signal on the weekly chart, trading up to a 2016 high of 1,287.80 on March 11th. Gold has pulled in over 60 points from that high. This decline in gold has been fueled by statements from Federal Reserve officials in which they say there is the possibility of a rate hike at the April or June FOMC meetings. I do not expect the FOMC to decide to hike the federal funds rate any time before the November U.S. presidential election. Gold was up 4.80 (0.39%) today, closing at 1223.50. Follow Steve on Twitter at @stevekalayjian Please see the Steve Kalayjian’s The Kalayjian Report and Newsletter Disclaimers and Disclosures Copyright 2016 KnowVera Research
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