Market Weekly Update

The broad stock market is still in a transition from the “Basement” phase to the “First Floor” phase of the speculated “Three Peaks and a Domed House” pattern. We may see a sideways market with a short-term neutral time-window until 12/26/2012.

• Broad Stock Market in a Short-Term Neutral Time-Window
• The S&P 500 Index in a Transition from the “Basement” Phase To the “First Floor” Phase
• Chinese Stock Market in Measured Move Down
• Gold is in the “Run” Phase of a Bump-and-Run Reversal Top Pattern
• Gold in a 6-Month Uptrend Channel
• Silver in a 6-Month Uptrend Channel
• Gold/Silver Mining Stocks in a 6-Month Uptrend Channel
• Crude Oil Returned to a 3-Month Downtrend Channel
• US Dollar in a 15-Month Uptrend Channel
• US Treasury Bond is in a Long-Term Bullish Uptrend
• Asset Class Performance Ranking with Equity Leading
• Sector Performance Ranking with Biotech Sector Leading
• BRIC Stock Market Performance Ranking with the Indian Market Leading

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 44. Based on the forecast of the Leading Wave Index (LWX), the broad market should start to be in a short-term neutral time-window until 12/26/2012 (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 formed a three-peak pattern inside the trading range from September to October. It 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 modified from 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 downwave of the S&P 500 index between 10/18/2012 and 11/15/2012 was a “Separating Decline” for a transition from the “Three Peaks” phase to the “Basement” phase. Typically the Basement phase is known as “the bear trap” with an integration of all bearish views from both headline news and majority of popular technical indicators. After the “Basement” phase gets well established, it starts to build up a “Domed House”. A swift advance should be seen to form a front wall of the “First Floor” phase. The current swift advance of the SPX is projected to reach the level of 1460 to re-test previous high.

Although the Chinese stock market had a sharp rebound last week, it is still forming a “Measured Move Down” pattern. The 4-month horizontal channel can be characterized as a corrective phase of the previous sharp decline from 2450 to 2100 (the 1st down leg). The 2nd down leg is expected to have a similar length and slope as the 1st down leg. The downside price target for this measured move is projected at 1700, which is the low of 2008.

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?” in August of 2011. Currently the gold price is below the “Lead-in Trendline” and it is in the “Run” phase. The falling Chinese stock market has dragged gold down to re-test the downside target line.

The gold index is possibly forming a 6-month uptrend channel. Now it is re-testing the lower boundary of the uptrend channel.

The silver index is possibly forming a 6-month uptrend channel. Silver may re-test the lower boundary of the uptrend channel.

Gold/silver mining stocks moved down to test the lower boundary of the 6-month uptrend channel.

Crude oil had a partial rise after its breakout from a 3-month falling wedge. Now it returned to a 3-month downtrend channel. The upside price target of 92 is negated.

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. 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 equity 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 1.01% above the EMA89. Outperforming sectors are Biotech (4.38%), Banks (3.74%), and Internet (3.28%). Underperforming sectors are Precious Metals (-9.63%), Technology (-3.03%), and Semiconductors (-2.15%). The S&P 400 Midcap 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 Indian market is leading.