Home > News > 04/29/2013 – Market Update

04/29/2013 – Market Update

Still in “Roof” Phase

The S&P 500 index is still in the “Roof” phase with a price range between 1550 and 1590. Without moving below 1550, a transition from the “Roof” phase to “Plunge” phase would not happen. The broad market should be in a short-term neutral time-window until 5/8/2013 followed by a bearish period.


Table of Contents


Choppy Market

The LWX Indicator in Last Four Weeks (Actual)
Last 4 wks LWX 4-26-2013

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 4-26-2013

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 12 on Friday (down from 60 the previous week) which is below the panic threshold level of 44 and indicates a bullish market. Based on the forecast of Leading-Wave Index (LWX), the broad market is in a short-term neutral time-window until 5/8/2013 followed by a bearish period (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: upward
Date of Next Cycle High: 5/8/2013
Broad Market Instability Index (BIX): 12, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

DWC 4-26-2013



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 26 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 is still in the “Roof” phase (“Bull Trap”) which is in the price range between 1550 and 1590. Currently the market is in a mixed sentiment and becomes very sensitive to any good or bad news. One major characteristics in this phase is a negative divergence between the price and technical indicators.

Before the “Plunge” phase, there are still two steps: 1) completion of the “Roof” phase, and 2) a phase transition from “Roof” to “Plunge”. Without moving below 1550, a transition from the “Roof” phase to “Plunge” phase would not happen for the SPX. Therefore, no any price target is projected for the “Plunge” phase. This view is applied to German DAX and London FTSE 100 too.

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 is in the distribution stage in which prices usually are very choppy.

SPX Three Peaks and a Domed House 4-26-2013



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 three degrees of waves: Primary, Intermediate, and Minor waves in this weekly chart. The SPX currently is in primary wave [3], intermediate wave (3), and the beginning of minor wave 4. Superposition of the third waves in multiple degrees typically carries the best part of a bull market.

A long-term price target for primary wave [3] is projected at 1770 by using 0.618 extension of wave [1]. However, there would be a couple of corrective waves, i.e., minor wave 4 and intermediate wave (4), before the price target of 1770.

SPX Elliott Wave (Weekly) 4-26-2013



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 over four-month.

Minor wave 3 has reached the short-term price target of 1593. Corrective wave 4 just started with minute waves [a] and [b]. A short-term price target is projected at 1460 for wave 4.

SPX Elliott Wave (Daily) 4-26-2013



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 4-26-2013

This year each week I will talk about one pair of markets in the table above. This week let’s check Greek Market vs. Chinese Market.

Greek Market vs. Chinese Market: The chart below is a daily chart in one-year time span for the ratio of the Athens Composite Index of Greece divided by the Shanghai Composite Index of China. Rising in the ratio indicates outperforming of the Greek market and underperforming of the Chinese market. After a sharp rising last year, the ratio formed a horizontal trading range. This month the ratio had a sharp advance again. Now it is testing the upper boundary of the horizontal channel. If it breaks through this level to the upside, another up-leg could start. It could imply that either the Greek market would advance sharply or the Chinese market would fall hardly.

Greece-vs-China 4-26-2013



Gold (Weekly) Forming Bearish 20-Month Downtrend Channel

The weekly chart shows that the gold index has formed a 20-month Downtrend Channel after it recently broke down from the 19-month Descending Triangle and reached the downside price target of 1400. It should be no surprise to see continuing price rebound from the lower boundary of the channel. This picture suggests gold in long-term bearish but short-term bullish.

GOLD 4-26-2013 weekly



Long-Term Picture: Silver Still Has Room to Fall

The following chart is a monthly chart for silver in 12 years. Recently silver has broken to the downside from its 2-year Descending Triangle pattern. By using Bulkowski’s measure rule on descending triangles, the long-term downside price target is projected at 15 for silver.

Silver 4-26-2013 monthly



Gold/Silver Mining Stocks Bearish Below 6-Month Downtrend Channel

Gold/silver mining stocks have recently broken to the downside from their 6-month downtrend channel. They may look for a support from the second channel line in the downside.

XAU 4-26-2013

HUI 4-26-2013



Crude Oil Forming 10-Month Trading Range

Crude oil is forming a 10-month horizontal trading range between 86 and 98. No price target is projected at this time.

Oil 4-26-2013



US Dollar in a 7-Month Broadening Ascending Triangle

The U.S. dollar is forming a 7-month Broadening Ascending Triangle pattern. Although this pattern has a bearish bias, but it has poor performance of direction suggestion. The U.S. dollar should continue its consolidation.

USD 4-26-2013



U.S. Treasury Returned into a 3-Year Uptrend Channel

The 30-year U.S. treasury returned to a 3-year uptrend channel after it rebounded in March, and regained strength. Considering the current deflationary environment indicated by the inflation rate below 3%, bonds have an inverse relationship with stocks. Strengthening in bonds indicates weakening in stocks.

USB 4-26-2013



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 4-26-2013



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 Wilshire 5000 index, as an average or a benchmark of the total market, is 4.04% above the EMA89. Outperforming sectors are Biotech (15.91%), Home Construction (9.12%), and Healthcare (7.64%). Underperforming sectors are Precious Metals (-19.61), Technology (-0.63%), and Basic Materials (-0.61%). The NASDAQ 100 is underperforming.

Sector 4-26-2013



BRIC Stock Market Performance Ranking with the Russian Market 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 Russian market is lagging.

BRIC 4-26-2013
  1. Pontric
    May 2, 2013 at 10:09 pm

    Dr. Yu – Now the SPX crossed the expected top of the roof (1590) and today it finished at 1597.73, what is next?

    • Vali
      May 6, 2013 at 4:08 am

      Hi Pontric.
      My opinion is that we didn’t see yet the top of the roof and that red circle should be enlarged on the chart.
      Loading shorts before confirmation (lower highs, lower lows) would be something truly stupid. Keeping longs here would be something like “extreme sports” (risk-reward ratio very unfriendly) … you know, “cash” is a position ‘per se’ you don’t have to be in the market non-stop – in a few weeks we will see the market price action. Keepin’ cash tight is a good idea.

      My roof as price would be somewhere in the 1658-1675 area if and only if 1616-1635 area is cleared strongly to the upside.

      My roof as time would be sometime between 18 May and 19 June 2013.
      I can’d be more precise than that in price-time relationship …

      My target would be 1549 – 1499 (truncated plunge due to unexpected FED decision at their meeting on 18-19 June’13). After that, again up,up, and….up :).
      Probably! :D

      Cheers!

      • Pontric
        May 6, 2013 at 4:44 pm

        Hi Vali – Great comments. Time will reveal the actual market conditions. Let us wait to see, how your target predictions are going pan out down the road …

    • May 7, 2013 at 4:50 pm

      Pontric,

      Lindsay’s original model does not quantitatively address how high the “Roof” should be. Other techniques may be used to help price-target projection. You may check my discussion about “Wave Extension”.

      Nu Yu

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