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05/13/2012 – Market Update

May 13, 2012 Leave a comment Go to comments

The Broad Market is in a Bearish Time-Window

The U.S. broad stock market had a bearish breakdown from a three-month head-and-shoulders top pattern, and the U.S. dollar had a bullish breakout from a four-month descending triangle. The Russian and Brazilian markets suffer from falling prices of oil and gold markets. The broad stock market is projected in a bearish time-window until 5/21/2012.

Table of Contents

Broad Stock Market is in a Short-Term Bearish Time Window
S&P 500 Index Completed Ascending Broadening Triangle Pattern
S&P 500 Index Confirmed a Head-and-Shoulders Pattern
Shanghai Composite Index is Forming a Possible Head-and-Shoulders Bottom Pattern
Gold is in the “Run” Phase of a Bump-and-Run Reversal Top Pattern
Gold/Silver Mining Stocks are in a Downtrend
Silver has Formed a Descending Triangle Pattern
Crude Oil Broke down from Symmetrical Triangle Pattern
US Dollar Broke out from Descending Triangle Pattern
30-Year US Treasury Bond is 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 Chinese Market Leading

Broad Stock Market is in a Short-Term Bearish Time Window

The LWX Indicator in Last Four Weeks (Past)

The LWX Indicator in Next Four Weeks (Forecast)

The Leading Wave Index (LWX) indicator shows that the broad stock market has been in a short-time bearish time-window since 5/4/2012. The LWX closed in bearish on Friday (see the first table above). The Wilshire 5000 index breached the 89-day moving average, and the Broad Market Instability Index (BIX) is above the panic threshold of 44. Based on the forecast from the LWX, the broad stock market should be in the bearish time-window until 5/21/2012 (see the second table above). The daily chart of the Wilshire 5000 index below has the price bars color coded with the LWX indicator. The current market status is summarized as follows:

Short-Term Cycle: in downswing phase

Next Reversal Date: 5/21/2012

Broad Market Instability Index (BIX): 148, above the panic threshold (bearish)

Momentum Indicator: negative (bearish)

S&P 500 Index Completed Ascending Broadening Wedge Pattern

The S&P 500 index completed the three-month Ascending Broadening Wedge pattern (see here) with a breakdown from the lower boundary of the wedge last week. Ascending broadening wedges typically appear at the late part of a uptrend or at market tops. Because the SPX has broken through also closed below the lower boundary, the price could have a further decline with a downside target around 1325 which is projected by using the lowest valley in the broadening wedge.

S&P 500 Index Confirmed Head-and-Shoulders Top Pattern

The SPX also broke down the neckline of a three-month Head-and-Shoulders top pattern last week. According to Bulkowski’s measure rule (see here), by giving the head price (1420), the neckline price (1350), the target meeting rate (55%) and the breakout price (1369), the downside target price is derived as 1369 – ( 1420 – 1350 ) x 0.55 = 1330.

Shanghai Composite Index is Forming a Possible Head-and-Shoulders Bottom Pattern

The Shanghai Composite Index has not confirmed its inverse Head-and-Shoulders pattern yet. It retreated from the neckline. It is neutral before a breakout from the neckline.

Gold is is in the “Run” Phase of a Bump-and-Run Reversal Top Pattern

The gold index has been in an intermediate-term “Bump-and-Run Reversal Top” pattern (see here). Currently it is below the “Lead-in Trendline” and it is in the “Run” phase. The typical characteristics of the “Run” phase is a downhill run for price movement. The downside price target could be around 1525 for support from the target line.

Gold/Silver Mining Stocks are in a Downtrend

As I mentioned on 4/7/2012, 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.

Last week HUI reached below 400 and XAU reached 146 briefly. They are very close to their price targets. It looks like they are making lower lows to form downtrend channels. The gold/silver mining sector currently has the lowest performance rank in comparison with all other sectors (see the table of sector performance ranking in the bottom).

Silver has Formed a Descending Triangle Pattern

Since April of last year, the silver index has formed a Descending Triangle pattern (see here) with a falling resistance line and a horizontal support line. The descending triangle generally appears in downtrends. Price movement is choppy between the two boundary lines before a breakout from the either side of the triangle. The current downswing may reach the lower boundary of the triangle around 26.50.

Crude Oil Broke down from Symmetrical Triangle Pattern

The crude oil has broken down from a symmetrical triangle pattern. The downside price target is projected at 92.50 as shown in the chart below.

US Dollar Broke out from Descending Triangle Pattern

The US dollar index broke out from its four-month Descending Triangle pattern last week. The upside price target is around 81.50 which is projected by using the highest peak in the descending triangle.

U.S. Treasury Bond is in a Trading Range

Since last August, the 30-Year US Treasury Bond index has been range bound in a horizontal channel or rectangular pattern between the upper boundary at 146 and the lower boundary at 135. Currently prices are in the upper half of the trading range. The upside price target is near 146 at the upper boundary of the horizontal channel

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 is outperforming. Crude oil is 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 0.15% below the EMA89. Outperforming sectors are Biotech (7.61%), Telecommunication (4.96%), and Real Estate (4.66%). Underperforming sectors are Precious Metals (-13.87%), Energy (-5.00%), and Basic Materials (-4.14%). The NASDAQ 100 (0.36%) is outperforming the market, and the Russell 2000 Small-cap (-1.06%) is underperforming.

BRIC Stock Market Performance Ranking with the Chinese Market Leading

The table below is the percentage change of the BRIC stock market indexes against the 89-day exponential moving average (EMA89), also in comparison to the US market. The Chinese market is outperforming and all other BRIC markets are underperforming.