08/20/2012 – Market Update
The broad stock market ended the flipping mode and entered a swing mode. The market should be in a 3-week-long downswing inside its 3-month uptrend channel. 9/10/2012 is the projected reversal day to change from a downswing to an upswing.
- The Broad Market has Started to Swing
- The 500 Index is in a 12-Week Uptrend Channel
- Chinese Stock Market is Forming a 5-Month Falling Wedge
- Gold is in the “Run” Phase of a Bump-and-Run Reversal Top Pattern
- Gold is Forming a 12-Week Trading Range
- Silver Price is still at Risk to the Downside
- Gold/Silver Mining Stocks had a Bullish Breakout
- Crude Oil is Forming a 7-Week Uptrend Channel
- US Dollar is Forming a 2.5-Month Uptrend Channel with a Shallow Slope
- US Treasury Bond is in a Long-Term Bullish Uptrend
- Asset Class Performance Ranking with the Equity Market Leading
- Sector Performance Ranking with Biotech Sector Leading
- BRIC Stock Market Performance Ranking with the Chinese Market Lagging
The broad stock market finally went out of the 5-day-flipping mode. It has started its slightly longer time range swing and has stayed the current upswing for 10 days so far. The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 5 (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 in a downswing and in a short-term bearish time-window until 9/10/2012 (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:
The S&P 500 index is in a 12-week Bullish uptrend channel. Also it stays above the upper boundary of the 15-week descending broadening triangle that is a very bullish sign for the SPX to potentially advance to the level of the previous high at 1420. However, it may not be able to reach the target at this time if the market gets into a three-week long bearish time window as mentioned above.
The Chinese stock market still struggles at its multi-year low level. Now the Shanghai Composite Index is forming a 5-month Falling Wedge pattern. If prices are able to break to the upside of the wedge, the Chinese market could become bullish. Otherwise, it remains bearish to make lower lows along the falling wedge.
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 1440 at the second target line.
Inside the 12-month Descending Triangle pattern , the gold index is forming a 12-week trading range between 1550 and 1630. Gold Prices stay choppy before a breakout from the trading range.
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 broke to the upside of the 10-week Descending Triangle, also the upside of the 6-month Descending Broadening Wedge. This is a bullish sign for gold/silver mining stocks. The upside price targets could be projected at the upper boundary of the 11-month Downtrend Channel, i.e., 170 for XAU and 450 for HUI.
Crude oil currently is in a 7-week uptrend channel.
The US dollar index is forming a 2.5-month uptrend channel with a shallow slope. This pattern is still considered as a consolidation after the shape advance of May. Prices could be choppy inside this channel before the next breakout.
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. Fed’s extension of Operation Twist should support the current bullish trend of treasury bonds. 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. stock market is outperforming. the U.S. treasury bond and Gold are 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 4.04% above the EMA89. Outperforming sectors are Biotech (6.97%), Telecommunication (6.36%), and Technology (5.83%). Underperforming sectors are Precious Metals (-0.18%), Utilities (1.23%), and Basic Materials (2.34%). The NASDAQ 100 (6.14%) is outperforming the market, and the Dow Jones Industrial Average (3.40%) 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. Currently all BIRC markets are underperforming the US market, and the Chinese market is lagging.
