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3/11/2012

Rising Wedge Still in Progress

The market swing last week didn’t change anything on the three-month rising wedge. The rising wedge pattern is still in development, and the choppy market is adding risks to both bulls and bears with Triple Witching Day approaching. Watch out for a partial rising inside the wedge.


Table of Contents
  • Status of Key Market Parameters
  • Broad Stock Market is Still in a Rising Wedge Pattern
  • Broad Market Instability Index Calmed Down from 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 Bank Sector Leading
  • BRIC Stock Market Performance Ranking with Brazilian 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 Still in a 3-Month Rising Wedge Pattern

The Dow Jones Wilshire 5000 index, as an average or a benchmark of the total equity market, is still in a 3-month “Rising Wedge” pattern (see here). Last week the index didn’t break through the lower boundary of the rising wedge, and bounced inside the wedge. 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, registered very negative readings early last week but it closed in bullish on Friday (see the 2nd table above). It indicates that the short-term bearish time window is going to end when we approach the middle of March. Based on the forecast from the LWX (see the 3rd table above), the broad stock market may have a new short-term (about 2 weeks) bullish time window. As long as the rising wedge is in progress, the broad market still has a potential for a pullback. It is just a matter of time.


Broad Market Instability Index Calmed Down from the Panic Threshold

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 8 on Friday after it reached 74 on Tuesday. The current low BIX reading is below the panic threshold and it indicates the broad market is becoming 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. Gold still has a potential for re-testing the “Lead-in Trendline” around 1640. Please note bearish signs for gold from the recent underperformance of: 1) the precious metal sector in the equity market; and 2) the Chinese and Indian stock markets.


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 15-month “Ascending Triangle” pattern (see here). The partial decline defined at 78.27 one week ago could be a bullish sign for the dollar to re-test the upper horizontal boundary of the ascending triangle soon.


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. Actually the trading range has been further narrowed between 140 and 146 since last November. Current prices are near 140 that is a middle level of the range between 135 and 146.


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. 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 5.47% above the EMA89. Outperforming sectors are Banks (9.19%), Technology (8.37%), and Consumer Services (6.90%). Underperforming sectors are Precious Metals (-5.10%), Materials (1.03%), and Utilities (1.16%). The NASDAQ 100 (8.25%) is outperforming the market, and the Dow Jones Industrial Average (3.70%) is underperforming.


BRIC Stock Market Performance Ranking with the Brazilian Market Leading

The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89). The Brazilian market is leading and the Indian market is lagging.

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