2/27/2012
Alert: The Broad Market is Overdue for a Pullback
The broad equity market continues moving on an upward incline with low volatility. The three-month rising wedge pattern suggests a 3-5% pullback towards the middle of March. Both my trend and momentum indicators continue showing negative signs.
Table of Contents
- Status of Key Market Parameters
- Broad Stock Market is Forming a Rising Wedge Pattern
- Broad Market Instability Index is below the Panic Threshold
- Gold is Still in a the “Bump” Phase
- Silver is Forming a Big Falling Wedge
- US Dollar is Still in Ascending Triangle Pattern
- 30-Year US Treasury Bond is Still in a Trading Range
- Asset Class Performance Ranking with Crude Oil Leading
- Sector Performance Ranking with Technology Sector Leading
- BRIC Stock Market Performance Ranking with Russian Market Leading
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 Forming a 3-Month Rising Wedge Pattern
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is forming a 3-month “Rising Wedge” pattern (see here). Although the rising wedge pattern typically has a bearish bias, it is one of the worst performing chart patterns to take a short position. Currently the Wilshire 5000 index is above the 89-day moving average and it is in the choppy zone of the rising wedge with negative 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), there is still a potential for a bearish time-window until the middle of March. The broad market may have a 3-5% pullback but may not breach the 89-day moving average.
Broad Market Instability Index is below the Panic Threshold
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 3 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 Still in the “Bump” Phase
The gold index is still in an intermediate-term “Bump-and-Run Reversal Top” pattern and it is in the “Bump” phase. Currently it is heading to the resistance of the “Warning Line”.
Silver is Forming a Big Falling Wedge
Since last April, the silver index has been in a “Falling Wedge” formation (see here). Although the falling wedge typically has a bullish bias, it is a very poor performer if it is counted on as a bullish pattern. The current swing is going to test the upper boundary of the falling wedge.
US Dollar is Still in an Ascending Triangle
The US dollar index is forming a 15-month “Ascending Triangle” pattern (see here).
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 crude oil and the U.S. equity are outperforming. The U.S. Dollar and Food 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 6.56% above the EMA89. Outperforming sectors are Technology (9.50%), Energy (7.52%), and Biotech (7.28%). Underperforming sectors are Utilities (1.29%), Precious Metals (1.45%), and Pharmaceuticals (2.05%). The NASDAQ 100 (8.51%) is outperforming the market, and the Dow Jones Industrial Average (5.18%) is underperforming.
BRIC Stock Market Performance Ranking with the Russian Market Leading
The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89). The Russian market is leading and the Chinese market is lagging.
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