09/24/2012 – Market Update
Crude oil broke to the downside following the sell-offs in the U.S. treasury bonds and the U.S. dollar after Fed’s QE3 announcement. A short-term bearish time-window could put a shadow on the broad stock market for next three weeks.
- The Broad Market is about to Change
- The S&P 500 Index Formed a 16-Week Bullish Uptrend Channel
- Chinese Stock Market Continues to Spiral Down
- Gold is in the “Run” Phase of a Bump-and-Run Reversal Top Pattern
- Gold is Forming a 12-Month Trading Range
- Silver is Forming a 12-Month Trading Range
- Gold/Silver Mining Stocks Near Price Targets
- Crude Oil Bearish Breakdown from 11-Week Rising Wedge
- US Dollar is Forming a 12-Month Bullish Uptrend Channel
- US Treasury Bond is in a Long-Term Bullish Uptrend
- Asset Class Performance Ranking with Gold Leading
- Sector Performance Ranking with Precious Metals Sector Leading
- BRIC Stock Market Performance Ranking with the Chinese Market Lagging
The market moved in a narrow range last week. The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 6 (up from 3 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 have started a short-term bearish time-window from last Friday, 9/21/2012. This bearish time-window could last about three weeks until 10/11/2012. 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 has formed a 16-week bullish uptrend channel. Prices could pull back towards 1430 near the lower boundary of the channel when the broad market gets into a short-term bearish time-window.
The Shanghai Composite Index failed from the previous bullish breakout and returned to a Falling Wedge formation. Prices should be in a spiral-down mode along the falling wedge until the next breakout from the upper boundary of the 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. A major resistance is expected from the lead-in trendline. If the gold price can manage to move back above the Lead-in Trendline, the Run phase could end.
The gold index is forming a 12-month Trading Range between 1550 and 1800. Currently prices are very near 1800 and face strong resistance from the upper horizontal line of the range.
The silver index is forming a 12-month Trading Range between 26.50 and 35.50 Currently prices are very close to 35.50 and face strong resistance from the upper horizontal line of the range.
After the bullish breakout from both the 6-month Descending Broadening Wedge and the 10-month Downtrend Channel, gold/silver mining stocks had a further powerful advance. Upside price targets could be projected at the high of the Descending Broadening Wedge, i.e., 204 for XAU and 550 for HUI.
Crude oil broke to the downside of the 11-week rising wedge last week. The downside price target is projected at 86.50.
The US dollar index got a support around 79. It is forming a 12-month bullish uptrend channel. The next price target is projected at 82
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 bullish trend of treasury bonds.
However, the continuation of this sharp bullish trend would be in question with newly announced Fed’s QE3 plan. The data of market performance ranking this last two weeks show that the U.S. treasury bonds, U.S. dollar, and U.S. stock market all became lagging and started to lose their leading positions which they have maintained nearly a year since Fed’s Operation Twist was launched last September. We will keep 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 gold is outperforming. The U.S. treasury bond and U.S. dollar 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 5.05% above the EMA89. Outperforming sectors are Precious Metals (12.68%), Biotech (10.55%), and Banks (7.45%). Underperforming sectors are Semiconductors (-3.16%), Utilities (-0.54%), and Real Estate (1.70%). The NASDAQ 100 (6.04%) is outperforming the market, and the Dow Jones Industrial Average (4.16%) 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 the Chinese market is lagging.
