5/22/2011
Table of Contents
- Status of Key Market Parameter
- Silver Index is Still Locked in “Bump-and-Run” Pattern
- Gold Index is Still in “Three-Peaks and Domed House” Pattern
- US Dollar is a 12-Month “Falling Wedge” Pattern
- Broad Stock Market Broke Forming a 3-Month “Rising Wedge” Pattern
- Market Volatility is above the Panic Threshold
- Asset Class Performance Ranking with Gold Leading
- Sector Performance Ranking with Biotech Sector Leading
- BRIC Stock Market Performance Ranking with all BRIC Markets Lagging
Current Status of the LWX (Leading Wave Index)
The LWX Indicator in Last Four Weeks (Past)
The LWX Indicator in Next Four Weeks (Forecast)
Silver Index is Still Locked in Bump-and-Run Pattern
From the high of $49.75/oz on April 25 to the low of $32.31/oz on May 12, the silver index has experienced a 35% major correction. Based on the Bump-and-Run Reversal Top pattern on the silver index which I identified on 5/1/2011 (see here) and further explained on 5/8/2011 (see here), the silver index is in the late part of the “Bump” phase and has not entered the “Run” phase yet. As shown in the chart below, recently silver prices have tested both of the resistance defined by the warning line and the support defined by the lead-in trendline without breakthrough on either side. More volatile swings should be seen in the region between those two lines before breaking through the lead-in trendline to start the “Run” phase. Investors should be aware of that the period of May and June typically is the worst season for silver, which is well-known by commodity traders (see here).
Gold Index is Still in a 8-Month “Three-Peaks and Domed-House” Pattern
The gold index has not got into the “Plunge” phase yet. It hesitates around the $1500/oz level that is the top border of the “Plunge” phase. Based on the “three-peaks and domed house” model, the “Plunge” phase suggests the gold index could fall to $1290/oz with a potential correction of about 27% from its all time high close.
U.S. Dollar is Forming a 12-Month Falling Wedge Pattern
The US dollar has formed a 12-month “Falling Wedge” (see here) pattern which is a potential bullish reversal pattern sooner or later as it matures. It is in a counter-trend move towards the upper boundary of the wedge. It is still to early to determine if the US dollar is in a bullish reversal before it breaks above the top boundary of the wedge.
Broad Stock Market Index is in a 3-Month Rising Wedge Pattern
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is forming a 3-month “Rising Wedge” (see here) pattern which is a potential bearish pattern when it matures. Currently the market is above the 89-day moving average and it is in the choppy zone of the rising wedge with negative readings of both the trend and momentum. The Leading Wave Index (LWX) indicator, color coded in the price bars of the following daily chart of the Wilshire 5000 index, closed in bearish on Friday. The LWX is in a neutral time-window for next four weeks.
Broad Market Volatility is above the Panic Threshold
The Broad Market Volatility (BIX), measured from over 8000 U.S. stocks, closed at 50 on Friday and it is above the panic threshold level of 44. The BIX above the panic threshold indicates that the current market is bearish. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.
Asset Class Performance Ranking with Gold Leading
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently gold and treasury bonds are outperforming the stock market. The oil, food, and the US dollar are underperforming the stock market.
Sector Performance Ranking with Biotech 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 1.80% above the EMA89. Outperforming sectors are Biotech (+7.92%), Healthcare (+6.94%), and Pharmaceuticals (+5.64%). Underperforming sectors are Banks (-5.58%), Precious Metals (-4.96%), and Financials (-1.73%). The S&P 400 Mid-cap (+2.54%) is outperforming the market, and the NASDAQ 100 (+1.52%) is underperforming.
BRIC Stock Market Performance Ranking with All BRIC Markets Lagging
The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89). The Brazilian, India, Chinese, and Russian markets are underperforming the U.S. market.
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