Home > News > 05/27/2012 – Market Update

05/27/2012 – Market Update

A Short-Term Bullish Time-Window Just Started

Gold and silver mining stocks, bottom fish, have bounced over 11% from their mid-May lows. Their rebound could be a bullish sign for a recovery of this commodity-driven and oversold market. A short-term bullish time-window just started last Friday, and it is projected to last about two weeks until 6/11/2012.


Table of Contents


A Short-Term Bullish Time Window Just Started

The LWX Indicator in Last Four Weeks (Past)

The LWX Indicator in Next Four Weeks (Forecast)

The decline of the broad market was suspended as the short-term bearish time-window ended on 5/21/2012. The market had a rebound but in a very volatile way. The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, calmed down to 54 (down from 458 the previous week) which is still slightly above the panic threshold level of 44. Based on the Leading Wave Index (LWX), a short-term bullish time-window started last Friday (see the first table above), and it is projected to last about two weeks until 6/11/2012 (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 upswing phase
Next Reversal Date: 6/11/2012
Broad Market Instability Index (BIX): 54, slightly above the panic threshold (bearish)
Momentum Indicator: slightly negative (neutral)



S&P 500 Index is in a Descending Broadening Wedge Pattern

The S&P 500 index is a Descending Broadening Wedge formation (see here) confined by two down-slopping diverging trend lines. The main characteristics of this pattern is that price movement becomes more and more volatile with a series of up-and-down high-waves. Last week the SPX had a rebound from the lower boundary of the wedge, and the market gradually started a recovery. Although an upswing in a descending broadening wedge can potentially move from the lower boundary to the upper boundary, this time I would use a parallel line of the lower boundary as a target line to project the first price target around 1350. This target would be adjusted to a higher price near the upper boundary of the wedge if market conditions improve.



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

The Shanghai Composite Index is still in progress of forming a possible inverse Head-and-Shoulders pattern. In general, the foreign markets recently performed much worse than the U.S. market. However, the Chinese market performed better than the U.S. market (see the BRIC market performance table on the bottom of this page). If the global stock markets have a technical rebound, the Chinese market could break out from its inverse head-and-shoulders pattern. Such a bullish breakout of the Chinese market may support a bullish reversal of gold and silver.



Gold is in a Descending Triangle Pattern

The gold 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. A bullish reversal from the horizontal support line of the triangle could start an upswing towards the previous intermediate-term trendline. The upside price target is projected at 1675 near the trendline (the gray dotted line).



Silver is in a Descending Triangle Pattern too

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. A bullish reversal from the support of the horizontal line could set up the next upside price target at the upper boundary of the triangle around 32.



Bullish Reversal on Gold/Silver Mining Stocks

Both XAU and HUI have impressively bounced over 11% from the lower boundary of their downtrend channels. The upside price targets for this counter-trend move are projected at the resistance from the horizontal lines of the previous descending triangle patterns, i.e., 175 for XAU and 480 for HUI.



Crude Oil Looks for a Possible Bullish Reversal

The crude oil forms a possible downtrend channel pattern, and looks for a bullish reversal from the support of the lower trend line.



US Dollar Price Target Revised

The US dollar index extended its rally after it broke out from a four-month descending triangle. The upside price target of 81.50 which I projected a couple of weeks ago now seems like conservative. According to Bulkowski’s measure rule (see here) for an upside breakout of descending triangles, from the high price (81.50), the horizontal line price (78.25), the target meeting rate (84%) and the breakout price (79.75), the upside target price could be derived as 79.75 + ( 81.50 – 78.25 ) x 0.84 = 82.48. It looks like the US dollar is almost there with this target.



U.S. Treasury Bond Broke out from the Trading Range

The 30-Year US Treasury Bond index broke out from the upper horizontal resistance line of the 9-month rectangular pattern, and made a new high over 148. It may pull back to re-test the upper horizontal line of the rectangular.



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 2.30% below the EMA89. Outperforming sectors are Biotech (4.77%), Telecommunication (3.90%), and Consumer Services (1.00%). Underperforming sectors are Precious Metals (-7.50%), Semiconductors (-7.30%), and Basic Materials (-6.82%). The S&P 400 Mip-cap (-2.18%) is outperforming the market, and the Russell 2000 Small-cap (-3.21%) 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.

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