07/08/2012 – Market Update
The US dollar and treasury bonds resume their uptrend after a several-week consolidation. Oil, precious metals, and the broad stock market enter a choppy mode.
- Short-Term Bullish Time Window still Opens
- The 500 Index is in a Choppy Mode with a Rising Wedge
- Chinese Stock Market is in a Primary Downtrend
- Gold is in the “Run” Phase of a Bump-and-Run Reversal Top Pattern
- Gold is in a Descending Triangle Pattern
- Silver Price is still at Risk to the Downside
- Gold/Silver Mining Stocks are Winding a Short-Term Coil Pattern
- Crude Oil Pulled back from its Breakout Advance
- US Dollar Bullish Breakout from a 5-Week Symmetrical Triangle Pattern
- US Treasury Bond is Bullish above the Warning Line
- Asset Class Performance Ranking with U.S. Treasury Bond Leading
- Sector Performance Ranking with Telecommunication Sector Leading
- BRIC Stock Market Performance Ranking with Indian Market Leading
The Leading Wave Index (LWX) was still positive and the short-term bullish time-window stayed open. The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 7 (down from 10 the previous week) which is below the panic threshold level of 45, and indicates that the market is currently bullish. Based on the forecast of the Leading Wave Index (LWX), the broad stock market should be neutral and very choppy next week. 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:
Inside the 13-week Descending Broadening Wedge formation, the S&P 500 index is forming a 7-week Rising Wedge pattern. Price movement could be choppy between two converging boundary lines of the rising wedge before a breakout. Last week the SPX pulled back after it was close to 1375 near resistance from the upper boundaries of both the 13-week descending broadening wedge and the 7-week rising wedge. It may test the lower boundary of the wedge in the coming week, and could have a choppy range between 1340 and 1370.
The Shanghai Composite Index has stayed below the horizontal line of the 5-month Descending Triangle pattern. According to Bulkowski’s measure rule, a downside price target could be projected by measuring the widest distance in the pattern, multiplying it by 54% price target meeting rate, and subtracting it from the breakout. Therefore, the Shanghai index could fall to 2260-(2470-2260)x54%=2146.
The gold index has been in an intermediate-term Bump-and-Run Reversal Top pattern since I identified this pattern on gold in my article “How Low Can Gold Go on a Correction?” last August. Currently the gold price 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. If the gold price breaks through the support of the first target line, the down price target is projected to 1400 at the second target line.
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. Gold tried to rebound during last several weeks but failed to reach the upper boundary of the descending triangle and formed several partial rises as a bearish sign for a downward breakout.
According to Bulkowski’s measure rule, a downside price target could be projected by measuring the widest distance in the descending triangle pattern, multiplying it by 54% price target meeting rate, and subtracting it from the breakout. So gold could fall to 1540-(1900-1540)x54%=1345 once a downside breakout occurs at 1540.
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, it tried to rebound during last several weeks but failed to reach the upper boundary of the descending triangle, that resulted in a partial rising as a bearish sign for a downward breakout.
According to Bulkowski’s measure rule, a downside price target could be projected by measuring the widest distance in the descending triangle pattern, multiplying it by 54% price target meeting rate, and subtracting it from the breakout. Therefore, if it breaks through 26.80, silver could fall to 26.80-(49.80-26.80)x54%=14.40.
Both XAU and HUI have been in a 10-month Downtrend Channel and a 5-month Descending Broadening Wedge. Now they are forming another 5-week short-term Symmetrical Triangle pattern. The next major move highly depends on which side to breakout from the triangle.
The bullish breakout from a four-month Falling Wedge pattern sent the crude oil price higher to almost reach our price target 89 last week. Now crude oil is in a retracement inside a 4-month downtrend channel.
The US dollar index broke to the upside of a 5-week Symmetrical Triangle pattern inside its intermediate-term uptrend channel. According to Bulkowski’s measure rule, the upside price target should be projected around 84.10, that could be near the upper boundary of the 10-month uptrend channel.
As I discussed on 6/4/2012 about “Is this a Sea-Change Signal from U.S. Treasury Bond Breakout?”, a long-term picture shows that the 30-Year US Treasury Bond had a bullish breakout from the warning line and entered into the bump phase of a possible “Bump-and-Run” formation. In the bump phase, sharp price movement could drive prices reach a bump height with at least twice the height of the lead-in uptrend channel. That means the 30-year U.S. treasury bond could reach to 172 in next several months. Fast rising prices on the bond could significantly influence stock, commodity, and currency markets. Fed’s extension of Operation Twist could support the current bullish trend of treasury bond prices. We will continue monitoring the bond price against the steep-upward-sloping trendline (the pike line).
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.
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 1.16% above the EMA89. Outperforming sectors are Telecommunication (6.20%), Biotech (5.88%), and Real Estate (5.10%). Underperforming sectors are Precious Metals (-5.63%), Semiconductors (-3.96%), and Basic Materials (-1.78%). The Russell 2000 Small-Cap (2.93%) is outperforming the market, and the Dow Jones Industrial Average (0.58%) is underperforming.
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.
