Table of Contents
- Status of Key Market Parameters
- Silver is in the “Run” Phase
- Gold Forming a “Bump-and-Run” Pattern
- Gold is in the “Plunge” Phase
- S&P 500 Index is in “Basement” Phase
- Broad Market Forming an 8-Week Horizontal Channel
- Broad Market Instability is above the Panic Threshold
- US Dollar Stays above 5-Month Rectangle Bottom
- US Treasury Bond is Forming an 8-Week Ascending Broadening Wedge
- Asset Class Performance Ranking with Bond Leading
- Sector Performance Ranking with Utilities Sector Leading
- BRIC Stock Market Performance Ranking with Indian 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)
Silver is in the “Run” Phase
SInce the “Bump-and-Run Reversal Top” pattern (read here) was identified on the silver index on 5/1/2011, we have tracked this pattern from its “Bump” phase to “Run” phase for five months. This past week the downhill run sent silver prices further lower than the previous week, and my last price target around 26 at the second target line was briefly touched. Silver now is still in the “Run” phase of the pattern, and it may re-test 26 at the second target line.
This pattern can be also viewed as a “Head-and-Shoulders Top” formation having the head in the “Bump” phase with the left shoulder in the “Lead-in” phase and the right shoulder in the “Run” phase. The “Lead-in Trend Line” actually serves as a neckline with an upward slope. After neckline support was broken at 39.50, the trend reversal was confirmed. The downside price target is projected at 21 by subtracting the head height above the neckline from the breakout price 39.50 at the neckline.
There is a huge downtrend channel formed if you draw an upper boundary line from point A at 49.82 to point C at 44.28 and a lower boundary line from point B at 32.30 to point D at 26.15. This downtrend channel could bind silver prices in a bearish and volatile mode for several months.
The silver index may also be in a “Dead-Cat Bounce” pattern. We are not surprised that prices bounced back from the second target line and recovered a portion of what they lost. But later on, there should be a postbounce decline driving prices gradually lower.
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. After it crossed below the sell line at 1850, massive sell-off has sent gold through the warning Line at 1670. The next target prices:
1) 1500 at the Lead-in Trend Line
2) 1350 at the Target Line
Gold is in the “Plunge” Phase of “Three-Peaks and a Domed House” Pattern
Currently the gold index is in the “Plunge” phase of its “Three-Peaks and a Domed House” pattern. The “Plunge” phase typically has two powerful down waves. Gold just finished the first down wave. There could be a brief up wave before the second powerful down wave. The range of the “Plunge” phase for gold is from 1750 to 1300.
S&P 500 Index is in the “Basement” Phase of “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. Currently it is in the “Basement” phase (bear trap) which is typically a very choppy period with up and down waves 11-14. Now it should have reached point 14. If it is able to stay on track and does not break to the downside, its next move should be an explosive advance from point 14 to point 15 in order to have a phase transition from the “Basement” phase to the “First Floor” phase. Considering the current inverse relationship between the S&P 500 index and gold, this explosive advance for the S&P 500 should be possible as gold gets into a powerful downwave.
Broad Stock Market Forming an 8-Week Horizontal Channel
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is forming an 8-week horizontal channel pattern (trading range). Currently the market is below the 89-day moving average and it is in the choppy zone of the horizontal 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 neutral on Friday. The LWX forecasts that October could be in a bullish time-window for the broad equity market. Waiting to see which side the market will break out from the horizontal channel.
Broad Market Instability Index is above the Panic Threshold
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, close at 304 on Friday. This reading is above the panic threshold level of 45. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.
U.S. Dollar is above its Rectangle Bottom
The US dollar index stays above 5-month rectangle bottom. 79 could be a short-term minimum price target projected by adding the rectangle height to the upper line of the rectangle.
U.S. Treasury Bond is Forming an Ascending Broadening Wedge
The 30-Year US Treasury Bond index is forming an 8-week Ascending Broadening Wedge pattern. Waiting to see if it is able to reach the upper boundary again. If not, a sell signal should be triggered.
Asset Class Performance Ranking with Bond Leading
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently treasury bond and the US dollar are outperforming. Oil, the equity market, food, and gold are underperforming.
Sector Performance Ranking with Utilities 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 8.64% below the EMA89. Outperforming sectors are Utilities (0.79%), Pharmaceuticals (-1.62%), and Biotech (-3.65%). Underperforming sectors are Materials (-19.71%), Banks (-16.12%), and Energy (-13.93%). The NASDAQ 100 (-4.85%) is outperforming the market, and the Russell 2000 Small-cap (-12.53%) is underperforming.
BRIC Stock Market Performance Ranking with Indian Market Leading
The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89). The Indian market is outperforming the U.S. market, and the Russian, Chinese, and Brazilian markets are underperforming.
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