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12/5/2010

December 5, 2010 Leave a comment Go to comments
 
Table of Contents
  • Status of Key Market Parameters
  • U.S. Dollar in Correction
  • Gold Forming Long-Term Bump and Run Pattern
  • Stock Market Still in Short-Term Sideways
  • S&P 500 Index Forming Intermediate-Tern Bullish Cup-with-Handle Pattern
  • Market Volatility below the Panic Threshold
  • Sector Ranking with Semiconductors Sector Leading
  • Chinese Stock Market Testing the 17-Week Moving Average

 
Current Status of the LWX (Leading Wave Index)
  
 
The LWX Indicator in Last Four Weeks (Past)
 
 
The LWX Indicator in Next Four Weeks (Forecast)

 
U.S. Dollar in Correction
 
The U.S. dollar index completed the broadening descending right-triangle pattern and measured move up pattern, and reached 81.44 in the projected price range between 81 and 82 last week. Now the dollar is in a correction that could give a time-window for gold and stock markets to advance. Also it could be setting up another bullish Measured-Move-Up pattern that consists of three parts: 1) 2nd up-leg, 2) a correction, and 3) 3rd up-leg as shown in the following chart. Once the correction ends, the third up-leg could be projected at the same angle and length as the second up-leg, that gives a price target of 82.5 with anticipated time by the middle of December.  


 
Gold Forming Long-Term Bump and Run Pattern
 
Gold is forming a Bump and Run pattern in a long-term timeframe as shown in the weekly chart below.  This pattern typically occurs when excessive speculation drives prices up steeply.  According to Thomas Bulkowski, this pattern consists three main phases: 1) lead-in, 2) bump, and 3) run.  In the lead-in phase, a lead-in trend line connecting the lows has a slope angle of about 30 degrees.  Prices move in an orderly manner and the range of price oscillation defines the lead-in hight between the lead-in trend line and the warning line which is parallel to the lead-in trend line.  After prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump hight with at least twice the lead-in hight.  Once the second parallel line gets crossed over, it serves as the sell line. Gold currently is in the bump phase, and its uptrend may continue as long as prices stay above the $1350 sell line.  But if prices break down the sell line, a bearish reversal could happen. 


 
Stock Market Still in Short-Term Sideways
 
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, has been in a six-week horizontal channel in sideways. The readings of both the trend and momentum indicators have turned positive. The market currently is in the choppy zone of the horizontal channel. The Leading Wave Index (LWX) indicator, color coded in the price bars of the following daily chart of the Wilshire 5000 index, turned positive last Friday. Based on the forecast of the LWX indicator, the market could enter a neutral time-window that could last weeks until higher market volatility is released. However, if the Wilshire 5000 index breaks through the resistance at the upper boundary of the horizontal channel, the market could become very bullish with the reason that will be explained in the next section below.


 
 
S&P 500 Index Forming Intermediate-Term Bullish Cup-with-Handle Pattern
  
The S&P 500 index is forming a 8-month Cup with Handle pattern in the following weekly chart. This is a bullish continuation pattern having two parts: 1) a cup, and 2) a handle after the prior 13-month uptrend with 83% advance from March of 2009 to April of 2010 led to the cup. As the cup was completed, the market spent seven weeks in the current horizontal trading range on the right hand side to form the handle. Once the upper resistance is broken, the market should continue its previous uptrend.  An upside price target for the S&P 500 index could be projected at 1440, about 18% advance, measured by the hight of the cup.  Correspondingly, it could be 15400 for the Wilshire 5000 index, and 13245 for the Dow Jones industrial Average index. Please note that the time span of those price objectives is in the intermediate term, rather than the short term, for a bullish perspective of the broad stock market going into 2011.


 
Broad Market Volatility below the Panic Threshold
 
The Broad Market Volatility (BIX), measured from over 8000 U.S. stocks, closed at 2 on Friday and it is still below the panic threshold level of 46. The volatility level of 2 is very 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 with Semiconductors Sector Leading
 
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 index, as an average or a benchmark of the total market, is 6.30% above the EMA89. Outperforming sectors are Semiconductors (+12.47%), and Precious Metals (+12.22%), and Internet (+12.04%). Underperforming sectors are Pharmaceuticals (-0.52%), Utilities (+0.84%), and Healthcare (+2.00%). The Russell 2000 (+9.41%) is outperforming the market, and the DJ-30 (+4.40%) is underperforming.
 

 
Chinese Stock Market Testing the 17-Week Moving Average
 
The chart below is a weekly chart of China’s Shanghai Stock Exchange Composite Index. The index retreated after China reported higher-than-expected inflation and renewing concerns that the China’s central bank will raise interest rates again. Currently the Shanghai index is testing the 17-week moving average (equivalent to the 89-day moving average).
 
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