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Archive for October, 2010
10/30/2010
October 30, 2010
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The LWX Indicator in Last Four Weeks (Past)
The LWX Indicator in Next Four Weeks (Forecast)
The Market is Counting Down to the Elections
The stock market finished higher in October after September gain, and it unusually behaved the opposite way of the traditional September-October-Bearish-Season. The Leading Wave Index (LWX) indicator, color coded in the price bars of the following daily chart of the Wilshire 5000 index, has been bullish since September 1. Based on the forecast of the LWX indicator, the current bullish time-window for the market looks like it is going to end in the early of November which coincides with the time of the midterm elections. What will happen next?
The market is counting down to the election. Traditionally, the stock market rallies after midterm elections almost every time. There has been only one exception in 1994 when the stock market had a near 5% decline lasted about 4 weeks right after the Republicans took back control of Congress from the midterm elections. Now we have a puzzle: will the stock market follow the traditional post-election rally pattern, or will it act like the exception in 1994?
As we approach November, both trend indicator and the momentum indicator show negative signs of the current rally. Also the forecast of the LWX indicator shows that the bearish time-window may begin as soon as early November. It gives us another puzzle: will we still have the traditional year’s best three-month span of November, December, and January again, or will we have something else this time?
Next week there also is the FOMC meeting on November 2-3. The financial markets are anticipating Fed’s another round of quantitative easing (QE). Although the stated objective of QE is to stimulate economy, the most of the QE is in the form of large-scale asset purchases from the Fed, i.e., in the form of transfer of risky assets from banks balance sheet to Fed’s balance sheet. The final results of the midterm elections and the announcement of the FOMC might trigger massive asset allocation of market participants. Volatile moves could be expected not only in the stock market but also in other financial markets such as bonds, the US dollar, and gold/silver.
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Trend indicator: down
Momentum indicator: negative
The Broad Market Volatility is below the Panic Threshold
The Broad Market Volatility (BIX), measured from over 8000 U.S. stocks, closed at 5 on Friday and it is below the panic threshold level of 47. The volatility level of 5 is low and it indicates that the current market is bullish. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.
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 5.00% above the EMA89. Outperforming sectors are Internet (+14.29%), Materials (+8.56%), and Technology (+7.73%). Underperforming sectors are Banks (-3.62%), Financials (+0.70%), and Utilities (+2.66%). The NASDAQ 100 (+8.56%) is outperforming the market, and the Dow (+4.11%) is underperforming.
China’s Shanghai Index is Testing the Resistance at 3000
The following chart is a weekly chart of China’s Shanghai Stock Exchange Composite Index. A bullish Golden Cross, defined by a successful breaking through both the 17-week moving average (equivalent to the 89-day moving average) and the median line of the 14-month downtrend channel around 2650, gives a sign of starting a new bull market. The Shanghai index had a 12% explosive surge after the golden cross, and it reached the price target of 3000 at the upper border of the 14-month downtrend channel. Now it is testing the resistance at 3000.
The “Three Peaks and Domed House” pattern of the Shanghai index is still on track and will be updated next week.
To find previous weekly reports, click dates marked with blue color in the calendar on the right side, or just click the following link “Older Entries” :
