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8/15/2011

Table of Contents
  • Status of Key Market Parameters
  • Broad Market Instability Index Settles from Monster Spike
  • Broad Market Forming a 4-Week Downtrend Channel
  • S&P 500 Index Forming a “Three-Peaks and a Domed House” Pattern
  • Gold is in “Three-Peaks and Domed House” Pattern
  • Gold Forming a “Bump-and-Run” Pattern
  • Silver Still in “Bump-and-Run” Pattern
  • US Dollar is in a 4-Month Horizontal Channel
  • Asset Class Performance Ranking with Gold Leading
  • Sector Performance Ranking with Precious Metals Sector Leading
  • BRIC Stock Market Performance Ranking with Chinese 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)


Broad Market Instability Index Settles from Monster Spike

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, surged up to 1580 last Monday. This reading is a near-record dating back to 2008. The BIX closed at 44 on Friday, right below the panic threshold level of 45. . Based on last week’s monster spike of the BIX, a couple of aftershocks still possibly come from the market in the near-term. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.


Broad Stock Market Broke Forming a 4-Week Downtrend Channel

The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, has formed a 4-week downtrend channel. Currently the market is below the 89-day moving average and it is in the choppy zone of the downtrend channel 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 bullish on Friday. The LWX forecasts that next 2.5 weeks are in a bullish time-window for the broad equity market.


S&P 500 Index Could Form “Three-Peaks and a Domed House” Pattern

The S&P 500 index could be in a progress to potentially form a “Three-Peaks and a Domed House” pattern as shown in the chart below. Last seven months the S&P 500 index went through the “Three Peaks” phase. After the sharp “separating decline” of last two weeks, it may have reached the “Basement” phase which is typically a choppy period.

Recently the S&P 500 index has re-established an inverse relationship with gold. It is interesting to see that the S&P 500 index comes to the “Basement” phase while gold reaches the “Roof” phase according to the “Three-Peaks and a Domed House” pattern. What is the next phase for the S&P 500 index and what is the next phase for gold?



Gold Index is in a 10-Month “Three-Peaks and Domed-House” Pattern

The gold index now is in the “Roof” phase and faces a potential risk of the “Plunge” phase sooner or later. Recently the gold index has re-established an inverse relationship with the S&P 500 index. Currently gold reaches the “Roof” phase while the S&P 500 index gets into the “Basement” phase. What are next moves of gold and the S&P 500 index?



Gold Index is Forming a 6-Year “Bump-and-Run” Pattern

The gold index is forming a “Bump-and-Run” pattern in the weekly chart in a 6-year time span, as shown in the chart below. Watch prices against the “Sell Line”. If gold prices cross down the “Sell Line” near 1700, a sharp decline could happen for gold. You may check what happened when the silver index crossed down the “Sell Line” of its “Bump-and-Run” pattern in May.



Silver Index is Still in Bump-and-Run Pattern

The silver index last week was in the way to returns to the Lead-in Trendline. The downside price target is projected at around $32/oz by the target line which is parallel to the lead-in trendline and is distant from the lead-in trendline with the same lead-in height.


U.S. Dollar is in a 4-Month Horizontal Channel

The US dollar index is in a bottom process of a 4-month horizontal channel with the upper boundary of 76 and the lower boundary of 73. Waiting to see which side it will break out.


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 bond are outperforming. Oil and the equity market are underperforming.


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 8.95% below the EMA89. Outperforming sectors are Precious Metals (-0.35%), Utilities (-4.17%), and Consumer Goods (-4.33%). Underperforming sectors are Banks (-19.20%), Financials (-13.66%), and Biotech (-10.83%). The NASDAQ 100 (-5.08%) is outperforming the market, and the Russell 2000 Small-cap (-12.45%) is underperforming.


BRIC Stock Market Performance Ranking with Chinese Market Leading

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

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