1/8/2012

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1/8/2012

January 8, 2012 Leave a comment Go to comments

2012 — The Year of the Water Dragon

While the world focuses on the debt crisis of western nations, the U.S. Dollar and the U.S. broad, and the stock market index (see here) are stealthily forming bullish ascending triangle patterns and are looking for a breakout. Also, major European stock market indexes such as the German DAX Composite (see here) and the London Financial Times Index (see here) are all in similar type of ascending triangle formation; even the Brazilian Bovespa Stock Index (see here) in South America is doing the same. However, only Asian stock markets are behaving differently this time. Major Asian market indexes like the Shanghai Stock Exchange Composite (see here), the India Bombay Stock Exchange Index (see here), and the Tokyo Nikkei Average (see here) are all in a downward spiral. The stock market is one of the important barometers of the economy. Watch out: as the Water Dragon swings, the real financial crisis in 2012 may not be in the region that you think.

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 Crude Oil Leading
Sector Performance Ranking with Biotech 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 transforming from a “Symmetrical Triangle” pattern to a three-month “Ascending Triangle” pattern (see here). The ascending triangle is typically a bullish continuation pattern. Although prices face the upper horizontal resistance, the reaction lows have kept rising since last October that indicates accumulation. Currently the Wilshire 5000 index is above the 89-day moving average and it is in the choppy zone of the ascending 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 11 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 in a major transition from the “Bump” phase to the “Run” phase. During this transition period, gold could test the Lead-in Trend line several times. If prices stay below the Lead-in Trend Line, gold would be in the “Run” phase and the next price target is 1420 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 26 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 Crude Oil Leading

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently the crude oil and the U.S. equity market are outperforming. Food and gold are underperforming.

Sector Performance Ranking with Biotech 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 3.17% above the EMA89. Outperforming sectors are Biotech (7.12%), Banks (5.73%), and Pharmaceuticals (5.19%). Underperforming sectors are Precious Metals (-3.96%), Internet (0.71%), and Telecommunication (0.85%). The Dow Jones Industrial Average (4.08%) is outperforming the market, and the S&P Mid-cap 400 (2.34%) 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.