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06/17/2012 – Market Update

June 17, 2012 Leave a comment Go to comments
The Broad Stock Market Should Continue Recovery

As the short-term bullish time-window extends from 6/11/2012, the Wilshire 5000 index has reached a four-week high. The broad stock market should continue its recovery while the treasury bond and the U.S. dollar take a pause. The current short-term bullish time-window for the broad stock market is projected to last until 6/21/2012. The weakening Chinese stock market and the coming FOMC meeting may add pressure on gold, silver and mining stocks.

Table of Contents

The Broad Stock Market is in a Short-Term Bullish Time Window

The LWX Indicator in Last Four Weeks (Past)

The LWX Indicator in Next Four Weeks (Forecast)


As the short-term bullish time-window extended from 6/11/2012, the Wilshire 5000 index closed at a four-week high on Friday. The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, dropped further to 11 (down from 39 the previous week) which is below the panic threshold level of 44, and indicates that the market is now bullish. Based on the Leading Wave Index (LWX), the broad stock market is in a short-term bullish time-window (see the first table above), and this bullish time-window is projected to last until 6/21/2012 (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 upswing phase
Next Reversal Date: 6/21/2012
Broad Market Instability Index (BIX): 11, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)


Short-Term Price Target of the S&P 500 Index

Currently there are three chart patterns formed on the S&P 500 index daily chart. Their measure rules provide an upside price target range from 1378 to 1420 as follows.

Descending Broadening Wedge

The S&P 500 index is still in a 10-week Descending Broadening Wedge formation 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. Currently the SPX is on upswing, and the upside price target is projected at 1380 at the upper boundary of the broadening wedge.

Falling Wedge

I mentioned last week, there was a Falling Wedge pattern formed inside the broadening wedge for the SPX. A falling wedge typically has a bullish bias. The SPX has broken through the upper boundary of the falling wedge. According to Bulkowski’s measure rule, the upside price target is projected around 1420 by using the highest peak of the falling wedge.

Descending Broadening Triangle

The SPX formed a five-week Descending Broadening Triangle pattern confined by a down-slopping trendline and a horizontal resistant line. Last Friday, prices decisively broke through the horizontal resistant line. According to Bulkowski’s measure rule, by multiplying the height (1335-1267 =68) of the triangle by the target meeting rate 63% and adding the result to the horizontal line (1335), the upside price target can be derived as (1335-1267)x63%+1335=1378. Please note that this type of broadening chart pattern is the worst performing chart pattern in a bull market. The break even failure rate is high and the average rise is meager.


Chinese Stock Market is Weakening

The Shanghai Composite Index is in progress of forming a possible Complex Head-and-Shoulders Bottom pattern. This bottom process may need more time until the transition of Chinese top political power is done this summer.


Gold 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. 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. Although gold had a rebound during last a couple of weeks, it comes to a check point again this coming week with FOMC meeting announcement.


Gold is in a Descending Triangle Pattern

The gold index has formed a Descending Triangle pattern 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 technical rebound from the horizontal support line of the triangle may face a challenge this coming week with FOMC meeting announcement, and it may have a difficult to reach the upside target. Therefore, the upside price target is suspended, and gold has partial rising watch during this coming week.


Silver is in a Descending Triangle Pattern too

Since April of last year, the silver index has formed a Descending Triangle pattern with a falling resistance line and a horizontal support line. It is the same like gold, silver may face a challenge this coming week with FOMC meeting announcement, and it may have a difficult to reach the upside target. Therefore, the upside price target is suspended, and silver has partial rising watch during this coming week.


Gold/Silver Mining Stocks are in Partial Rising Watch

Both XAU and HUI have been in their technical rebound since mid-May. Due to partial rising watch for gold and silver, mining stocks should be in partial rising watch too, and their upside price targets should be suspended.


Crude Oil Looks for a Possible Bullish Reversal

The crude oil suspended its decline last week and formed a new downtrend channel. It may start a technical rebound.


US Dollar is Forming a Nine-Month Uptrend channel

The US dollar index is forming a nine-month uptrend channel. Currently it is in a retracement process inside the channel.


U.S. Treasury Bond is above the Warning Line

As discussed two weeks ago (see here), a long-term picture shows that the 30-Year US Treasury Bond has broken the warning line and has entered into the bump phase of a possible “Bump-and-Run” formation. Fast rising prices on the bond could significantly influence stock, commodity, and currency markets. We will continue monitoring the bond price against the steep-upward-sloping trendline (the pike line).


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 Telecommunication 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 0.20% below the EMA89. Outperforming sectors are Telecommunication (7.62%), Biotech (3.95%), and Utilities (3.75%). Underperforming sectors are Materials (-4.29%), Energy (-3.16%), and Precious Metals (-2.81%). The Dow Jones Industrial Average (0.65%) is outperforming the market, and the S&P 400 Mid-Cap (-2.56%) is underperforming.


BRIC Stock Market Performance Ranking with the Indian 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 Indian market is outperforming and all other BRIC markets are underperforming.

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