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1/9/2011

 
Table of Contents
  • Status of Key Market Parameters
  • U.S. Dollar in a Uptrend Channel
  • Stock Market in Choppy Zone of a Rising Wedge
  • Market Volatility below the Panic Threshold
  • Sector Ranking with Basic Materials 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 a Uptrend Channel
 
After four-week consolidation in December, the U.S. dollar index formed a uptrend channel based on the two-month uptrend line from November low to December low. Last week it resumed its uptrend and built up a Measured Move Up pattern that consists of three parts: 1) November reversal advance, 2) December pullback, and 3) the current continuation advance as shown in the chart below. November reversal advance acted as a led-in move to form the first up-leg of the pattern. After December pullback, the resumed continuation advance in January is forming the second up-leg that could have the same angle and length as the first up-leg. This second up-leg suggests a price target at 84.5 before the end of January.


 
Broad Stock Market in Choppy Zone of a Rising Wedge
 
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is in the choppy zone of a 5-month Rising Wedge with negative readings of both the trend and momentum indicators last Friday. The Leading Wave Index (LWX) indicator, color coded in the price bars of the following daily chart of the Wilshire 5000 index, turned neutral last Friday also. Based on the forecast of the LWX indicator, the market is in a neutral time-window that could last weeks until higher market volatility is released.  


 
Broad Market Volatility below the Panic Threshold
 
The Broad Market Volatility (BIX), measured from over 8000 U.S. stocks, closed at 8 on Friday and it is still below the panic threshold level of 46. The volatility level of 8 is low and it indicates that the current market is bullish. But the BIX is starting turn higher. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.
 

 
Sector Ranking with Basic Materials 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 6.26% above the EMA89. Outperforming sectors are Materials (+9.35%), Internet (+9.26%), and Energy (+8.97%). Underperforming sectors are Utilities (+1.62%), Pharmaceuticals (+1.84%), and Precious Metals (+2.15%). The Russell 2000 (+8.28%) is outperforming the market, and the DJ-30 (+4.07%) 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 is under the pressure of higher inflation and higher interest rates in China. Currently the Shanghai index is testing the 17-week moving average (equivalent to the 89-day moving average).
 
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