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3/25/2012
March 25, 2012
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Bearish Time-Window is Coming
The broad stock market still has a rising wedge pattern in development. As it approaches the wedge apex, a breakout must occur sometime from either side. There is a potential, starting from Tuesday, 3/27/2012, to have a three-week bearish time-window that may make a pullback happen.
Table of Contents
- Status of Key Market Parameters
- Broad Stock Market is Still in 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 Equity Market Leading
- Sector Performance Ranking with Bank Sector Leading
- BRIC Stock Market Performance Ranking with Chinese Market 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 a 4-Month Rising Wedge Pattern
The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, has been in a “Rising Wedge” pattern (see here) for four months, on the way towards the wedge apex. 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 neutral on Friday (see the 2nd table above). Based on the forecast from the LWX (see the 3rd table above), the market may have a 3-week bearish time-window starting from Tuesday, 3/27/2012. This potential bearish time-window could make a pullback happen.
Broad Market Instability Index is below the Panic Threshold
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 12. The current low BIX reading is below the panic threshold and it indicates the broad 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 in an intermediate-term “Bump-and-Run Reversal Top” pattern and it is in the “Bump” phase. Currently gold is testing the “Lead-in Trendline”. Please note bearish signs for gold from the recent poor performances of: 1) the precious metal sector in the equity market; and 2) the Chinese and Indian stock markets (see the BRIC Stock Market Performance table at the bottom). Although gold may react inversely with the U.S. stock market, any further declines in the Chinese and Indian stock markets could drag gold down below the lead-in trendline to start the “Run” phase.
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.
US Dollar is Still in an Ascending Triangle
The US dollar index is forming a 16-month “Ascending Triangle” pattern (see here). The partial decline defined at 78.27 could be a bullish sign for the dollar to re-test the upper horizontal boundary of the ascending triangle.
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. Currently prices are in the lower half of the trading range.
Asset Class Performance Ranking with Equity Market 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. equity market and the crude oil are outperforming. Food and the U.S. Treasury Bond are underperforming.
Sector Performance Ranking with Bank 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 5.77% above the EMA89. Outperforming sectors are Banks (14.81%), Technology (9.50%), and Financials (9.41%). Underperforming sectors are Precious Metals (-8.41%), Utilities (0.01%), and Energy (1.13%). The NASDAQ 100 (9.16%) is outperforming the market, and the Dow Jones Industrial Average (3.82%) is underperforming.
BRIC Stock Market Performance Ranking with the Chinese Market 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, and especially the Chinese market is lagging.
