10/21/2012 – Market Update
A trading range pattern appears on the charts of the S&P 500, crude oil, gold, and silver. The broad stock market has been choppy for several weeks. It is waiting for next breakout from the trading range. The current price level is critical to hold the market.
- Choppy Market
- The S&P 500 Index Range-Bound
- Chinese Stock Market is Forming a 2-Month Trading Range
- Gold is in the “Run” Phase of a Bump-and-Run Reversal Top Pattern
- Gold is in a 12-Month Trading Range
- Silver is in a 12-Month Trading Range
- Gold/Silver Mining Stocks in 4-Month Rising Wedge
- Crude Oil is Forming a 4-Week Trading Range
- US Dollar is Forming a 10-Month Bearish Broadening Top
- US Treasury Bond is in a Long-Term Bullish Uptrend
- Asset Class Performance Ranking with Gold Leading
- Sector Performance Ranking with Banks Sector Leading
- BRIC Stock Market Performance Ranking with the Chinese Market Lagging
The broad stock market had no significant move except choppy up-and-down inside a trading range last week. The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 40 (down from 41 the previous week) which approaches the panic threshold level of 44. Based on the forecast of the Leading Wave Index (LWX), the broad stock market could be very choppy and volatile in the next couple of weeks (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 has been in a 6-week Trading Range between 1430 and 1470. Prices could be choppy before a breakout from the horizontal channel. Now the index is testing 1430 again at the lower boundary of the channel. If it breaks through this level to the downside, the next support level could be 1400.
The Chinese stock market is forming a 2-month trading range between 2000 and 2150. If it can not break through the upper resistance at 2150, it may move down to the previous low near 2000.
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 would end.
The gold index has formed a 12-month Trading Range between 1540 and 1800. Last two weeks it pulled back after it faced the strong resistance from the upper horizontal line of the range. No short-term price target is projected this time.
The silver index has formed a 12-month Trading Range between 26.50 and 36. Same as gold, last two weeks silver pulled back after it faced the strong resistance from the upper horizontal line of the range. No short-term price target is projected this time.
After the bullish breakout from the 6-month Descending Broadening Wedge, gold/silver mining stocks had a further powerful advance and formed a 4-month Rising Wedge pattern. Currently prices are pulling back and testing the lower boundary of the rising wedge.
Crude oil is forming a 4-week trading range between 88 and 93. Prices could swing inside the horizontal channel before the next breakout.
The US dollar index could not reach the price target 82 and just made a partial rise. Now it is forming a 10-month Right-Angled Ascending Broadening pattern. This pattern is typically bearish, especially with a partial rising. The 78.5 level is the horizontal support line of the broadening pattern. The dollar could become very bearish once it breaks down the 78.5 level.
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 in last few 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 September of last year. 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. Crude oil and the 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 1.50% above the EMA89. Outperforming sectors are Banks (5.35%), Pharmaceuticals (5.05%), and Biotech (4.56%). Underperforming sectors are Semiconductors (-7.75%), Technology (-4.06%), and Internet (-0.83%). The S&P 500 is outperforming and the NASDAQ 100 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.
