9/19/2010
The LWX Indicator in Last Four Weeks (Past)
The LWX Indicator in Next Four Weeks (Forecast)
The Broad Market Volatility is below the Panic Threshold
The BIX (Broad Market Volatility) closed at 4 on Friday and it is below the panic threshold level of 47. The volatility level of 4 is very low and it indicates that the current market is bullish.
Market is in a 5-Month Inverted Roof Pattern
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, has rallied over 7% since September 1. The index broke above the 4.5-month downtrend line while staying above the 89-day moving average, suggesting a new uptrend is underway. In the 5-month scale, the index is forming a pattern similar to either an Inverted Roof or a Complex Head-and-Shoulders Bottom. The neckline of this ongoing formation is at the key resistance level of 11765. It is interesting that the neckline is in line with the close price level of May 6 when the market had a flash crash. Now the Wilshire 5000 index approaches this key resistance level again. If the neckline is breached, the market could have a transaction from the accumulation phase to the markup phase, and another 10% bullish measured move could be expected.
The Leading Wave Index (LWX) indicator, color coded into the price bars of the following daily chart of the Wilshire 5000 index for easy reference, has been bullish since September 1. Based on the forecast of the LWX indicator, the bullish time-window for the market extends to the early of November that would coincide with the time of the midterm election. Somehow this bullish projection of the LWX is contradictory to the current widespread bearish and scary opinions of “Head-and-Shoulder“, “Hindenburg Omen“, and “September-October-Bearish–Season“.
The major factor that could significantly impact the market next week is the FOMC meeting on Tuesday, September 21. There are growing concerns about the Federal Reserve’s super-low interest rate policy. Keeping the interest rate too low and too long may not certainly have a positive effect on the economy as expected. Also continuing to keep rates low means keeping bonds prices high, which could continue to lead the money flow into the bond market rather than into the equity market. The Fed’s announcement of last meeting on August 10 triggered a 7% equity market decline lasting three weeks. It would be interesting to see if the current new starting uptrend of the equity market can survive the next Fed’s announcement in the coming week.
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Trend indicator: up
Momentum indicator: positive
Sector Ranking
The following table is the percentage change of sectors and major market indexes against the 89-day exponential moving average (EMA89). The Dow Jones Wilshire 5000, as an average or a benchmark of the total market, is up 2.52%. Outperforming sectors are Internet (up 9.36%), Precious Metals (up 7.36%), and Telecommunication (up 7.25%). Underperforming sectors are Banks (down 2.46%), Semiconductors (down 2.32%), and Energy (up 0.15%). The Nasdaq 100 (up 5.05%) is outperforming the market, and the Russell 2000 small-cap (up 1.86%) is underperforming.
The Chinese Market, Waiting for an Explosive Kick-off from 2650
The following chart is a weekly chart of the Shanghai Stock Exchange Composite Index. Since the bearish dead cross in the early of this year, the Chinese market has been in a downtrend by staying under the 17-week moving average (equivalent to 89-day moving average). It is currently in a 14-month downtrend channel (between two blue lines), and in the choppy zone of the channel between 2250 and 3000. However, if the index successfully crosses over both of the 17-week moving average and the pink dotted median line of the 14-month downtrend channel around 2650 marked by a red circle, it should be characterized as a potential bullish Golden Cross. Currently the index is still testing the 17-week moving average. This is the eighth week for the index around this critical level of 2650. Watch out for a kick off. It could be explosive.
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