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1/1/2012

We are in 2012!

With the mystery of 2012, there is an explosive increase in the number of articles published on the internet forecasting the financial markets for 2012. So far there have been 313 million results by Google “financial market forecast 2012″. I wonder if the markets are efficient enough to digest all this information. According to the Chinese Zodiac, the year of 2012 is the year of the Water Dragon, which occurs every 60 years and typically is a major transformational life-changing year with a roller coaster ride! Whether it turns out extremely good, or really bad, will depend on how you ride the Dragon!


Table of Contents
  • Status of Key Market Parameters
  • Broad Stock Market is Looking for a Breakout
  • Broad Market Instability Index is below the Panic Threshold
  • Gold is in a Transition from the “Bump” Phase to the “Run” Phase
  • Silver is Still in the “Run” Phase
  • US Dollar is Forming an “Ascending Triangle” Pattern
  • 30-Year US Treasury Bond is in a Trading Range
  • Asset Class Performance Ranking with U.S. Treasury Bond Leading
  • Sector Performance Ranking with Pharmaceuticals 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 is Looking for a Breakout

The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is right above an intermediate-term “Symmetrical Triangle” pattern (see here). It may re-test the upper boundary of the triangle. Currently the Wilshire 5000 index is above the 89-day moving average and it is in the uptrend zone above the triangle 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. Based on the forecast from the LWX (see the 3rd table above), the bullish time-window will go on till 1/10/2012.


Broad Market Instability Index is below the Panic Threshold

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 8 on Friday. This reading is below the panic threshold level of 46, and it indicates that the current market is bullish. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.


Gold is in a Transition from the “Bump” Phase to the “Run” Phase

The gold index is still in an intermediate-term “Bump-and-Run Reversal Top” pattern and it is now in a major transition from the “Bump” phase to the “Run” phase. If prices stay below the Lead-in Trend Line, gold would be in the “Run” phase and the next price target is 1400 at the 1st Target Line.


Silver is in the “Run” Phase

The silver index is still in the “Run” phase of the “Bump-and-Run Reversal Top” pattern. Silver has been a dead cat already and the downside price target is project at 25 on the third target line.


U.S. Dollar is Forming an “Ascending Triangle” Pattern

The US dollar index is forming a 12-month “Ascending Triangle” pattern (see here). The horizontal resistance at 81 could be a critical level to check dollar’s next move.


U.S. Treasury Bond is in a Trading Range

The 30-Year US Treasury Bond index is forming a horizontal channel pattern (trading range) between the upper boundary at 146 and the lower boundary at 135.


Asset Class Performance Ranking with U.S. Treasury Bond Leading

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently the U.S. Treasury Bond and oil are outperforming. Gold and food are underperforming.


Sector Performance Ranking with Pharmaceuticals 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 1.88% above the EMA89. Outperforming sectors are Pharmaceuticals (6.35%), Utilities (4.98%), and Biotech (4.28%). Underperforming sectors are Precious Metals (-7.34%), Materials (-2.12%), and Internet (-0.43%). The Dow Jones Industrial Average (3.31%) is outperforming the market, and the NASDAQ 100 (0.05%) 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). All BRIC markets are underperforming the US market.


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