9/26/2010
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 0 on Friday and it is below the panic threshold level of 47. The volatility level of 0 is absolutely low and it indicates that the current market is bullish.
The Neckline of the 5-Month Inverted Roof Pattern was Breached
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, has rallied 9.7% since September 1. Last week was a transition point for the market, which changed it from the accumulation phase into the markup phase. In the 5-month scale, the Wilshire 5000 index has formed a pattern similar to either an Inverted Roof or a Complex Head-and-Shoulders Bottom. The neckline of this pattern at the key resistance level of 11765 was breached last week with the help of the announcement on Monday that the U.S. recession had officially ended. It suggests that the midterm election year bottom could be behind us and the market would have 10% measured move to the upside from the level of the neckline.
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 elections. This bullish projection of the LWX is contradictory to the widespread bearish and scary opinions of “Head-and-Shoulder“, “Hindenburg Omen“, and “September-October-Bearish–Season“.
The FOMC meeting announcement last week had a very small impact to the market. Although the Fed’s monetary policy had almost no change, the market reaction this time was significantly different from last time in August. It indicates that the dominant factor in charge of the market has shifted from interest rates to the powerful election cycle force. As the market approaches the congressional midterm elections and then the presidential pre-election year of 2011, interest rates will get less of an impact on the market. The coming week is the last week of the month also the quarter, we will see how window dressing finishes this historically remarkable September.
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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 4.30%. Outperforming sectors are Internet (up 12.79%), Precious Metals (up 9.09%), and Telecommunication (up 8.58%). Underperforming sectors are Banks (down 2.39%), Financials (up 0.99%), and Semiconductors (up 1.27%). The Nasdaq 100 (up 7.89%) is outperforming the market, and the S&P 500 (up 4.08%) 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 ninth week for the index around this critical level of 2650. An explosive kick-off is still expected.
An important long-term “Three Peaks and Domed House” pattern is emerging for the Shanghai index. It could be very significant to the Chinese stock market in the next one or two years. I will discuss it in the next week market review.
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