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Archive for October, 2011
10/30/2011
October 30, 2011
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Table of Contents
- Status of Key Market Parameters
- S&P 500 Index is in Progress to Form a “Three-Peaks and a Domed House”
- Broad Stock Market is Forming a “Rising Wedge” Pattern
- Broad Market Instability Index is below the Panic Threshold
- Gold is in the “Plunge” Phase
- Gold Forming a “Bump-and-Run” Pattern
- Silver is in the “Run” Phase with “Dead-Cat Bounce”
- US Dollar is Forming a “Symmetrical Triangle” Pattern
- 30-Year US Treasury Bond Down from “Ascending Broadening Wedge”
- Asset Class Performance Ranking with Equity Leading
- Sector Performance Ranking with Semiconductors Sector Leading
- BRIC Stock Market Performance Ranking with Chinese Market 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)
S&P 500 Index is in Progress to Form a “Three-Peaks and a Domed House” Pattern
The S&P 500 index is in the progress of potentially forming a “Three-Peaks and a Domed House” pattern as shown in the chart below. We have been tracking this formation since 8/7/2011 (see here). Currently the S&P 500 index is in a phase transition from the “Basement” phase (bear trap) to the “First Floor” phase with a sharp advance wave from point 14 toward point 15 according to George Lindsay’s original model (click the graph to see a larger image). The “First Floor” phase is projected around 1360 for the S&P 500 index. The current pattern tracking with model stands true until proven otherwise.
Please note that the market may behave quite differently in the phase transition period than in the “Basement” phase, which means that the technical indicators or trading systems worked in the “Basement” phase may not work very well in the “Phase Transition” period.
Broad Stock Market is Forming a “Rising Wedge” Pattern
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is forming a 4-week “Rising Wedge” pattern (see here). The price trend can be any direction leading to this pattern. The Wilshire 5000 index now is above the 89-day moving average and it is in the choppy zone of the rising wedge pattern with positive 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 the next three weeks will be in a neutral time-window.
Broad Market Instability Index is below the Panic Threshold
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 3 on Friday. This reading is far below the panic threshold level of 46, and it indicates that the current market is bullish. The next minor instability spike is expected to be 60 trading days away from October 4, which will occur on December 29. This projection could give the broad equity market a near three-month “instability-quiet” period with relative low volatility. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.
Gold is in the “Plunge” Phase
The gold index is still in the “Plunge” phase of the “Three-Peaks and a Domed House” pattern. According to George Lindsay’s original model, the “Plunge” phase typically comprises two powerful down-waves. The first down-wave from point 25 to point 26 has finished. Now gold could be still near point 27 right before the second powerful, also most severe, down-wave from point 27 toward point 28. The price target is projected at 1300 which is the lowest price of the entire pattern (click the chart to see a larger image).
We may wander what fundamentals can support such a downward move of gold. Three important factors should not be overlooked: 1) Crack of the Chinese housing market; 2) Fed’s Operation Twist; and 3) Foreign-exchange intervention of the Japanese government.
Gold is in “Bump-and-Run Reversal Top” Pattern
The gold index is forming an intermediate-term “Bump-and-Run Reversal Top” pattern and it now is in the “Bump” phase. The next target prices: 1) 1530 at the Lead-in Trend Line, and 2) 1370 at the Target Line.
Silver is in the “Run” Phase with “Dead-Cat Bounce”
The silver index is still in the “Run” phase of the “Bump-and-Run Reversal Top” pattern. After a “Dead-Cat Bounce”, silver should be in a post-bounce decline driving prices gradually lower. The last price target is project at 22 on the third target line, which is close to the price level when this pattern originally started on the left side of the following chart.
U.S. Dollar is Forming a “Symmetrical Triangle” Pattern
The US dollar index is forming a 11-month “Symmetrical Triangle” pattern (see here). Prices should be choppy inside the triangle. Watch out for a new foreign-exchange intervention of the Japanese government. It could have a positive impact on the U.S. dollar and a negative impact on gold.
U.S. Treasury Bond is Down from Ascending Broadening Wedge
The 30-Year US Treasury Bond index stays below the lower boundary of the 8-week “Ascending Broadening Wedge” pattern (see here) after the downward breakout. The downside price target is projected at 132 which is the lowest price of the wedge. Please note that this pattern has only 58% meeting price target for down breakouts. It implies an adjusted price target around 136. This adjusted price target was reached last week.
Asset Class Performance Ranking with Equity Leading
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently the equity market and gold are outperforming. Food and the US dollar are underperforming.
Sector Performance 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 5.17% above the EMA89. Outperforming sectors are Semiconductors (8.43%), Energy (7.07%), and Technology (6.84%). Underperforming sectors are Telecommunications (0.93%), Banks (3.28%), and Healthcare (3.39%). The NASDAQ 100 (5.84%) is outperforming the market, and the S&P 400 Mid-cap (4.81%) is underperforming.
BRIC Stock Market Performance Ranking with Chinese Market Lagging
The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89). The all BRIC markets are underperforming the US market.
