1/15/2012
Break or Retreat?
The U.S. dollar, U.S. 30-year Treasury bond, and U.S. equity market are all in bullish territory, and now each of them is about to challenge its own key upper horizontal resistance respectively, i.e., 81 for the dollar index, 146 for the 30-year Treasury bond, and 1300 for the S&P 500 index. How do they manage to go up together like this? Can they break through or retreat back? For a clue, closely watch Fed’s Operation Twist (see here) and China’s hot money outflow (see here).
Table of Contents
- Status of Key Market Parameters
- Broad Stock Market is Still in Ascending Triangle Pattern
- 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 Testing the Critical Resistance Level around 81
- 30-Year US Treasury Bond is Still in a Trading Range
- Asset Class Performance Ranking with U.S. Treasury Bond 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 Still in an Ascending Triangle Pattern
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is still in 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 neutral time-window could extend to 1/19/2012.
Broad Market Instability Index is below the Panic Threshold
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 10 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 break 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.
US Dollar is Testing the Critical Resistance Level around 81
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 the U.S. equity 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 3.90% above the EMA89. Outperforming sectors are Biotech (10.92%), Banks (8.63%), and Healthcare (5.48%). Underperforming sectors are Precious Metals (-1.26%), Internet (0.27%), and Utilities (1.45%). The Russell 2000 Small-cap (4.30%) is outperforming the market, and the NASDAQ 100 (3.52%) 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 continue to underperform the US market.
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