Home > News > 03/24/2013 – Market Update

03/24/2013 – Market Update

Still Roof Phase

The S&P 500 index is still in the “Roof” phase (Bull Trap) of the “Three Peaks and a Domed House” pattern. The Leading-Wave Index forecast indicates a short-term bearish time-window until 4/3/2013.


Table of Contents


Broad Market is getting in a Short-Term Bearish Time-Window

The LWX Indicator in Last Four Weeks (Actual)
Last 4 wks LWX 3-22-2013

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 3-22-2013

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 8 on Friday (down from 11 the previous week) which is below the panic threshold level of 44 and indicates a bullish market. The Leading-Wave Index (LWX) is getting into a short-term bearish time-window. Based on the forecast of the LWX, the broad market would be in a short-term bearish time-window until 4/3/2013 (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:

Short-Term Cycle: downward
Date of Next Cycle Low: 4/3/2013
Broad Market Instability Index (BIX): 8, below the panic threshold (bullish)
Momentum Indicator: negative (bearish)

DWC 3-22-2013



Intermediate-Term Picture: S&P 500 Index in “Three Peaks and a Domed House” Formation

We have been tracking the current speculated “Three Peaks and a Domed House” pattern of the S&P 500 index for 21 weeks since my Weekly Update of 10/31/2012. The “Three Peaks and a Domed House” pattern is a complex chart formation, and it presents higher difficulties or challenges for a single technical indicator or system to handle the market throughout the entire pattern. It enhances risks and opportunities for both the bulls and bears.

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.

3PDH

The SPX has been the “Roof” phase for two weeks. The market is in a mixed sentiment and becomes very sensitive to any good or bad news. The “Roof” phase is typically a “Bull Trap” for blind trend-followers. One major characteristics in this phase is a negative divergence between the price and technical indicators.

This intermediate-term “Three Peaks and a Domed House” formation also can be checked with the standard weekly MACD Histogram indicator mathematically mapped on the following SPX daily chart, marked with each stage of the market cycle. The current market should be in the distribution stage in which prices usually are very choppy.

SPX Three Peaks and a Domed House 3-22-2013



Long-Term Picture: Elliott Wave Count on S&P 500 Index

The following chart is a weekly chart of the S&P 500 index, with my Elliott Wave count, in a four-year time span. The stock market crash of 2008 had a massive washout and reset the market in early March 2009 as “ground zero” for the beginning of wave count.

There are four degrees of waves: Primary, Intermediate, Minor, and Minute waves in this weekly chart. The SPX currently is in primary wave [3], intermediate wave (3), minor wave 3, and minute wave [v]. Superposition of the third waves in multiple degrees typically carries the best part of a bull market.

How high can this third primary wave go? A long-term price target for primary wave [3] is projected at 1770 by using 0.618 extension of wave [1].

SPX Elliott Wave (Weekly) 3-22-2013



Short-Term Picture: Elliott Wave Count on S&P 500 Index

The following daily chart of the S&P 500 index shows a detail wave structure of minor wave 3, from mid-November to the present, with sub-waves of minute waves [i], [ii], [iii], [iv], and [v]. Minor wave 3 has been in a well-defined bullish uptrend channel for almost four month.

How high can this third minor wave go? A short-term price target for minor wave 3 is projected at 1593 by using 0.618 extension of wave 1.

Currently minute wave [v] probably is ending.

SPX Elliott Wave (Daily) 3-22-2013



Market Ratio and Competitive Strength

The market ratio is very helpful to compare strengths between two markets. The table below tracks weekly performances for several pairs of markets, i.e., the euro vs. the US dollar, the Greek market vs. the Chinese market, the long-term rate vs. the short-term rate, the S&P 500 index vs. gold, small caps vs. large caps, the US market vs. the world market, and Apple vs. BlackBerry.

For each pair of markets listed in the table, the market ratio is calculated by dividing one market by another. Then the competitive strength is further evaluated from a percentage change of the ratio against its 89-day exponential moving average. The results divide the markets into two groups: outperforming markets and underperforming markets, for this week as follows:

Market Ratios 3-22-2013

This year each week I will talk about one pair of markets in the table above. Last week, I discussed the euro vs. U.S. dollar. This week let’s check small-cap stocks vs. large-cap stocks again.

Small-Caps vs. Large-Caps: The chart below is a daily chart in seven-month time span for the ratio of the Russell 2000 index of smaller companies divided by the Russell 1000 index of largest companies. Rising in the ratio indicates outperforming of small-cap stocks. Last eleven weeks the ratio formed an Ascending Broadening Wedge pattern. This pattern is a typical topping formation. Last week the ratio formed a Partial Rising pattern which the ratio could not reach the upper boundary of the wedge. This partial rising could be a bearish sign for small-cap stocks.

RUT-RUI 3-22-2013



Gold (Weekly) in 19-Month Descending Triangle

The weekly chart shows that the gold index has formed a 19-month Descending Triangle pattern in the intermediate-term. Prices are testing the lower boundary of the triangle. Defending the price level of 1575 is critical for gold to prevent a free fall.

GOLD 3-22-2013 weekly



Gold (Daily) in 5-Month Descending Broadening Wedge

The gold index has formed a 5-month Descending Broadening Wedge. It also has a 4-week ascending right triangle inside the wedge. Prices could be in sideways before a breakout from the triangle.

GOLD 3-22-2013 daily



Silver in 5-Month Descending Broadening Wedge

Same as gold, the silver index has formed a 5-month Descending Broadening Wedge. It also has a 4-week symmetrical triangle inside the wedge. A breakout from the triangle could be anytime soon. Watch out the direction of the breakout.

Silver 3-22-2013



Gold/Silver Mining Stocks in 5-Month Downtrend Channel

Gold/silver mining stocks formed a 5-month downtrend channel. It also has a 4-week ascending right triangle inside the wedge. Prices could be in sideways before a breakout from the triangle.

XAU 3-22-2013

HUI 3-22-2013



Crude Oil in 9-Month Ascending Triangle

Crude oil now is forming a 9-month ascending triangle pattern. It could be in sideways before it break out from the upper horizontal boundary. It has rebounded from the lower boundary of the triangle, and has been in an up-wave towards the horizontal boundary.

Oil 3-22-2013



US Dollar in Consolidation

After a bullish breakout from the 4-month Descending Triangle pattern, the U.S. dollar has reached the price target of 83. Now it should be in a consolidation.

USD 3-22-2013



U.S. Treasury Bond Weakening

Considering the current deflationary environment indicated by the inflation rate below 3%, bonds have an inverse relationship with stocks. Strengthening in stocks means weakening in bonds. The 30-year U.S. treasury bond has recently broken a 2-year rising wedge pattern to the downside. A price target could be projected at 138.

USB 3-22-2013



Asset Class Performance Ranking with Equity Leading

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, and gold is underperforming.

Asset 3-22-2013



Sector Performance Ranking with Biotech Sector Leading

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 4.94% above the EMA89. Outperforming sectors are Biotech (10.17%), Home Construction (8.13%), and Banks (6.38%). Underperforming sectors are Precious Metals (-7.90%), Materials (0.96%), and Technology (1.43%). The Russell 2000 Small-cap is outperforming and the NASDAQ 100 is underperforming.

Sector 3-22-2013



BRIC Stock Market Performance Ranking with the Brazilian Market is Lagging

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 Brazilian market is lagging.

BRIC 3-22-2013
  1. SeniorD
    March 28, 2013 at 2:09 pm

    Dr. Nu Yu I believe we will see the dollar descend as the Cyprus money “flight” reestablishes normalcy and investors begin to spread their risk among various currencies and/or PM, which now at a much lower price. This will drive the next big trend in the charts rather than “just” normal trading.

  2. HAO, QI
    March 25, 2013 at 2:36 pm

    Seems another small Lindsay base is formed and one more rise (a month) is coming right now…

  3. Will
    March 25, 2013 at 1:12 am

    Hi Dr. Nu Yu,

    Do you expect that we’ll reach point 24 by 5 April? And what price level do you expect at point 24?

    • March 25, 2013 at 7:24 am

      Will,

      Point 24 is likely to happen in a price range near February low by April 3-5 if the market pulls back.

      Nu Yu

  4. March 24, 2013 at 9:03 pm

    Dr. Nu Yu,

    What’s your estimated SP500 target at point 28 and when?

    • March 24, 2013 at 10:14 pm

      Carolyn,

      Point 28 is in the “Plunge” phase. Right now I have no estimation about the “Plunge” phase without the completion of the “Roof” phase.

      Nu Yu

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s