4/23/2011

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4/23/2011

April 23, 2011 Leave a comment Go to comments

Table of Contents

Status of Key Market Parameter
Gold Index is Building up a 7-Month “Three-Peaks and Domed House” Pattern
Broad Stock Market is Forming a 2-Month Inverted Roof Pattern
Market Volatility is below the Panic Threshold
Asset Class Performance Ranking with Oil Leading
Sector Performance Ranking with Precious Metals Sector Leading
BRIC Stock Market Performance Ranking with Russian Market Leading

Current Status of the LWX (Leading Wave Index)

The LWX Indicator in Last Four Weeks (Past)

The LWX Indicator in Next Four Weeks (Forecast)

Gold Index is Building up a 7-Month “Three-Peaks and Domed-House” Pattern

The gold index is forming a special chart pattern, “Three Peaks and the Domed House“, in a 7-month time span. With my modified version of George Lindsay’s basic model, the “Three Peaks and the Domed House” pattern can be divided into five major phases:

1) Three Peaks phase,

2) Basement phase,

3) First Floor phase,

4) Roof phase, and

5) Plunge phase.

This modified version, using “phase-counting”, is a macro approach to Lindsay’s basic model, and it is different from the classical micro approach using “number-counting” from 1 to 28. In the following chart, the gold index developed the “Three Peaks” phase from last November to last December. It had a separating decline to reach a low at 1310 and formed the “Basement” phase (bear trap) in the late of this January. Then it started a rapid advance in February and built the “First Floor” of the Domed House in March.

Since the early of April, the gold index has been in another rapid advance, and now it is approaching the “Roof” phase (bull trap) that is the top of the pattern. The current advance should be a measure move of the advance right before the “First Floor” phase with the same length and duration that project a price target at 1540 in the early of May.

But after that, the gold index could roll over into the “Plunge” phase, the last phase of the “Three-Peaks and the Domed House” pattern, with a potential sharp decline of 16% down to the 1290 level, most likely in June. The gold price could become very volatile in the next couple of months.

Broad Stock Market Index is Forming a 2-Month Inverted Roof Pattern

The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is forming a 2-month inverted roof pattern with positive readings of both the trend and momentum. The market could become very bullish once the index breaks through the upper horizontal resistance line. Currently the market is above the 89-day moving average and it is in the choppy zone of the inverted roof pattern. The Leading Wave Index (LWX) indicator, color coded in the price bars of the following daily chart of the Wilshire 5000 index, closed in bullish on Thursday. The LWX is in the neutral time-window for next four weeks.

Broad Market Volatility is below the Panic Threshold

The Broad Market Volatility (BIX), measured from over 8000 U.S. stocks, closed at 13 on Thursday and it is below the panic threshold level of 44. The BIX below the panic threshold indicates that the current market is bullish. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.

Asset Class Performance Ranking with Oil Leading

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently oil and gold are outperforming the stock market. The U.S. dollar and treasury bond are underperforming the stock market.

Sector Performance Ranking with Precious Metals 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 3.89% above the EMA89. Outperforming sectors are Precious Metals (+7.15%), Energy (+7.08%), and Basic materials (+6.32%). Underperforming sectors are Banks (-3.57%), Financials (+0.31%), and Utilities (+2.27%). The S&P 400 Mid-cap (+5.55%) is outperforming the market, and the S&P 500 (+3.62%) is underperforming.

BRIC Stock Market Performance Ranking with Russian Market Leading

The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89). The Russian market is outperforming the U.S. market. The Brazilian market is underperforming the U.S. market.