10/16/2011
Table of Contents
- Status of Key Market Parameters
- Broad Stock Market Broke Upward
- Upward Breakout Targets of Major Stock Market Indices
- Broad Market Instability Index is below the Panic Threshold
- S&P 500 Index Broke Upward from 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 is in a Retracement
- 30-Year US Treasury Bond Down from “Ascending Broadening Wedge”
- Asset Class Performance Ranking with Bond Leading
- Sector Performance Ranking with Technology 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 Stock Market Broke Upward
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, had a bullish breakout from the upper boundary of the 10-week downward-slopping rectangle pattern last Friday. Now it is testing the 89-day moving average and it is in the uptrend zone above the sloping rectangle with positive readings of both the trend and momentum. The upward breakout target is projected at 14250 for the Wilshire 5000 by adding the rectangle height to the breakout point at the upper boundary of the rectangle. 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 coming week should be in a bullish time window for the broad equity market. The next cycle date is 10/21/2011.
Upward Breakout Targets of Major Market Indices
Most major stock market indices have had breakouts to the upside from their sloping rectangle patterns, as shown in the chart below. By adding the rectangle height to the breakout point at the upper boundary of the rectangles, the minimum upward breakout targets are projected at:
2950 for the NASDAQ
12600 for the Dow Jones Industrials
1335 for the S&P 500
810 for the Russell 2000
Broad Market Instability Index is below the Panic Threshold
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 1 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.
S&P 500 Index Broke Upward from the “Basement” Phase
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. After spent almost ten weeks in the very choppy “Basement” phase (bear trap), the index broke upward last Friday from the “Basement” phase. Point 14 is behind us, and the market has started a sharp advance wave (wave 15) for a phase transition from the “Basement” phase to the “First Floor” phase. The “First Floor” phase is projected around 1360 for the S&P 500 index.
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 from now on.
Gold is in the “Plunge” Phase
The gold index is still in the “Plunge” phase of the “Three-Peaks and a Domed House” pattern. The “Plunge” phase typically has two powerful down-waves. The first down-wave (wave 26) has been finished. Now gold should be in 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. The last price target is project at 21 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 in a Retracement
The US dollar index pulled back after it reached the price target of 79. Now the upper boundary at 76 of the 5-month rectangle bottom pattern becomes a support line.
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 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 equity market are outperforming. Food and oil are underperforming.
Sector Performance Ranking with Technology 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 0.24% above the EMA89. Outperforming sectors are Technology (5.85%), Semiconductors (4.48%), and Consumer Services (2.57%). Underperforming sectors are Banks (-7.29%), Materials (-5.75%), and Financials (-5.02%). The NASDAQ 100 (5.53%) is outperforming the market, and the Russell 2000 Small-cap (-1.60%) 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.
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