Archive
10/31/2012 – Market Update
The broad stock market becomes volatile as the U.S. presidential election is approaching. Additionally, the impact of Hurricane Sandy could add either positive or negative influence to the market.
- The Broad Market Instability Index is above the Panic Threshold
- The S&P 500 Index Formed Three Peaks
- 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 Broke Down the 4-Month Rising Wedge
- Crude Oil Broke Down the 4-Week Trading Range
- US Dollar in a 15-Month Uptrend Channel
- US Treasury Bond is in a Long-Term Bullish Uptrend
- Asset Class Performance Ranking with Gold Leading
- Sector Performance Ranking with Pharmaceuticals Sector Leading
- BRIC Stock Market Performance Ranking with the Chinese Market Lagging
The broad stock market has been in a correction. The Wilshire 5000 index is testing the 89-day exponential moving average. The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 84 (up from 40 the previous week) which is above the panic threshold level of 44. Based on the forecast of the Leading Wave Index (LWX), the broad stock market could be bearish and volatile until 11/7/2012 (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 broke its 6-week Trading Range to the downside last week. Prices inside that trading range formed a three-peak pattern. This could be the beginning of a “Three Peaks and a Domed House” formation. In speaking of “the Three Peaks and a Domed House” pattern, my version of George Lindsay’s basic model uses a macro or “phase-counting” approach which is different from Lindsay’s original micro approach (which uses “wave-counting” from 1 to 28) in that it divides the “Three Peaks and the Domed House” pattern into five major phases as follows: 1) Three Peaks, 2) Basement, 3) First Floor, 4) Roof, and 5) Plunge.
The current downwave of the S&P 500 index since 10/18/2012 could be a “Separating Decline” between the three peaks and a perspective domed house. The next phase of the expected pattern is the “Basement” phase. Due to increasing the volatility, the price range of the “Basement” phase could be wide from 1400 down to 1370 for the SPX. Typically the Basement phase is known as “the bear trap”.
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 (the green line). 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 three 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 three 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.
Gold/silver mining stocks have broken to the downside from the 4-month Rising Wedge pattern. The downside price target is projected at 172.5 for XAU and 455 for HUI, to form a uptrend channel.
Crude oil broke down the 4-week trading range to the downside. The downside price target is projected at 82.
The US dollar index still maintains a 15-month uptrend channel, as long as it stays above the lower support line of the 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. 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 0.03% above the EMA89. Outperforming sectors are Pharmaceuticals (3.08%), Banks (2.73%), and Biotech (2.48%). Underperforming sectors are Semiconductors (-5.60%), Technology (-4.28%), and Real Estate (-1.75%). 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.
