10/9/2011
Table of Contents
- Status of Key Market Parameters
- Broad Market Instability Index Has Come Down from a Satellite Spike
- Broad Market Forming a 9-Week Sloping Rectangle Pattern
- S&P 500 Index is in the “Basement” Phase
- 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 Has Reached the Short-Term Price Target
- 30-Year US Treasury Bond Broke Down from “Ascending Broadening Wedge”
- Asset Class Performance Ranking with Bond Leading
- Sector Performance Ranking with Utilities 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)
Broad Market Instability Index Has Come Down from a Satellite Spike
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 29 on Friday. This reading is below the panic threshold level of 46. The BIX reached 354 on October 4, which is a satellite spike of the monster spike on August 8. Another satellite spike on the left side of the monster spike is 262 on June 10. Both satellite spike peaks are located exactly 40 trading days from the monster spike peak on August 8.
The next minor satellite spike peak is expected to be 60 trading days away from October 4, which will occur on December 29. So the broad equity market should stabilize with relative low volatility for almost the next three months before the next market instability spike. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.
Broad Stock Market Forming a 9-Week Sloping Rectangle
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is in a 9-week downward-slopping rectangle pattern. Currently the market is below the 89-day moving average and it is in the choppy zone of the sloping rectangle 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 the next two weeks should be in a bullish time window for the broad equity market.
S&P 500 Index is in the “Basement” Phase (Bear Trap)
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 finally 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. If this powerful advance from point 14 to point 15 can be realized, that would push the S&P 500 index back to the 1360 level that is almost about 200 point upward move from the current level.
We may wonder what fundamentals support such a bullish projection. Let’s see what Stock Trader’s Almanac says on its blog:
Despite everything, U.S. GDP has remained positive and the economy is growing. Corporate earnings and their forecasts remain strong (upcoming earnings season will provide further clarity) and sentiment is at its most bearish levels since the March 2009 market bottom. According to Investors Intelligence latest Advisors Sentiment survey, the percentage of bearish advisors has risen to 45.2%, just two points from the peak reached in March 2009. Consumer confidence is also at near levels last seen in early 2009. It is always darkest before the light and it is time to prepare for the light. (read here)
Also the bearish projection on the 30-Year US Treasury Bond supports the bullish projection on the US stock market (see the bond section below).
Gold is in the “Plunge” Phase
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 has finished the first down wave (wave 26). Now it should have a brief up wave (wave 27) before the second powerful down wave (wave 28). The range of the “Plunge” phase for gold is from 1750 to 1300.
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) 1520 at the Lead-in Trend Line, and 2) 1350 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 and it may re-test 26 at the second target line. Now silver is in a “Dead-Cat Bounce”. There should be a post-bounce decline driving prices gradually lower.
U.S. Dollar Has Reached the Short-Term Price Target
The US dollar index stays above 5-month rectangle bottom. The minimum price target of 79 has been reached. It could get into a consolidation period.
U.S. Treasury Bond Broke Down from Ascending Broadening Wedge
In my last market weekly update, I mentioned that a sell signal should be triggered if the 30-Year US Treasury Bond index is not able to reach the upper boundary of the 8-week “Ascending Broadening Wedge” pattern (see here). The partial rise at 145 inside the wedge on Tuesday and the downward breakout from the wedge on Friday confirmed the bearish warning on the bond.
The downside price target is projected at 132 which is the lowest price of the wedge. This projection indicates a decline of about 9% measured from 145. Please note that the bond market currently has an inverse relationship with the stock market. The bearish projection on the bond also supports the bullish projection on the S&P 500 index.
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, food and the equity market 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 5.90% below the EMA89. Outperforming sectors are Utilities (0.28%), Pharmaceuticals (-0.76%), and Technology (-1.59%). Underperforming sectors are Banks (-14.44%), Materials (-14.21%), and Financials (-11.66%). The NASDAQ 100 (-1.64%) is outperforming the market, and the Russell 2000 Small-cap (-9.76%) 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 all BRIC markets are underperforming the US market.
Comments (0)
Trackbacks (0)
Leave a comment
Trackback
