04/07/2012 – Market Update
Downside Breakout Alerts
1) Gold broke its 20-month trendline, and it could fall to 1500 for the next support.
2) XAU and HUI broke to the downside from their 7-months descending triangle patterns, and both could decline about 17% measured from the breakout.
3) The broad stock market is about to have a downside breakout from its 4-month rising wedge, and is likely in a bearish time-window until 4/16/2012
2) XAU and HUI broke to the downside from their 7-months descending triangle patterns, and both could decline about 17% measured from the breakout.
3) The broad stock market is about to have a downside breakout from its 4-month rising wedge, and is likely in a bearish time-window until 4/16/2012
Table of Contents
- Status of Key Market Parameters
- Broad Stock Market is about to Resolve the Rising Wedge
- Broad Market Instability Index is above the Panic Threshold
- Gold Broke its 20-Month Trendline
- XAU & HUI Descending Triangle Downside Breakout
- 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 about to Resolve Rising Wedge
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. As the wedge apex is near and trading range narrows, a downside breakout could be triggered once the lower boundary of the wedge is breached. Currently the Wilshire 5000 index is above the 89-day moving average and it is in the downtrend zone right below 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 bearish on Thursday (see the 2nd table above). Based on the forecast from the LWX (see the 3rd table above), the market would be in a bearish time-window until 4/16/2012 which is right before the US tax deadline. The market may look for support at the 89-day moving average (EMA89).
Broad Market Instability Index is above the Panic Threshold
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 58 on Thursday. This BIX reading is above the panic threshold of 44 and it indicates the broad market is bearish. The BIX is plotted in the following chart as compared with the Wilshire 5000 index.
Gold is Emerging into the “Run” Phase
The gold index has been in an intermediate-term “Bump-and-Run Reversal Top” pattern (see here). Last week prices broke support from the 20-month Lead-in Trendline and stepped in the “Run” phase which is the third phase of the “Bump-and-Run” pattern. The typical characteristics of this phase is a downhill run for price movement. The downside price target could be around 1500 for support from the first target line.
XAU & HUI Descending Triangle Downside Breakout
Both XAU and HUI have broken to the downside from their 7-month descending triangle patterns (see here). The descending triangle is a bearish formation confined by an upper descending trend line and a lower horizontal line. Once a downside breakout occurs, a price target is projected by measuring the widest distance of the pattern, multiplying it by 54% price target meeting rate, and subtracting it from the breakout. Therefore, XAU could fall to 144 and HUI could fall to 400. Both should decline about 17% measured from the breakout.
Silver is Forming a Big Falling Wedge
Since last April, the silver index has been in a “Falling Wedge” formation (see here) for almost a year. Although the falling wedge typically has a bullish bias, this bullish bias cannot be realized until an upper boundary breakout.
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 resistance 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 crude oil are outperforming. Food and gold 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 4.41% above the EMA89. Outperforming sectors are Banks (9.47%), Technology (8.18%), and Biotech (7.38%). Underperforming sectors are Precious Metals (-12.93%), Energy (-1.51%), and Materials (-0.66%). The NASDAQ 100 (8.38) is outperforming the market, and the Dow Jones Industrial Average (2.81%) 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, especially with the Chinese market lagging.
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