Home > News > 06/03/2013 – Market Update

06/03/2013 – Market Update

Bump and Run Reversals

Although the patterns are not perfect, we still have the “Bump and Run Reversal Top” for the S&P 500 index and the “Bump and Run Reversal Bottom” for gold/silver mining stocks. The broad stock market should be in a short-term bearish time-window until 6/7/2013.


Table of Contents


Broad Market in a Short-Term Bearish Time-Window

The LWX Indicator in Last Four Weeks (Actual)
Last 4 wks LWX 5-31-2013

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 5-31-2013

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 23 on Friday (up from 9 the previous week) which is below the panic threshold level of 43 and indicates a bullish market. Based on the forecast of the Leading-Wave Index (LWX), the broad market should be in a short-term bearish time-window until 6/7/2013 (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: 6/7/2013
Broad Market Instability Index (BIX): 23, below the panic threshold (bullish)
Momentum Indicator: negative (bearish)

DWC 5-31-2013



Intermediate-Term Picture: S&P 500 Index May Form a “Bump and Run Reversal Top” Pattern

The S&P 500 index is in a possible intermediate-term “Bump and Run Reversal Top” pattern. A Bump-and-Run pattern typically occurs when excessive speculation drives prices up steeply. According to Thomas Bulkowski, this pattern consists of three major phases: 1) Lead-in phase, 2) Bump phase, and 3) Run phase.

Since mid-November, the SPX has been in an uptrend channel for almost 6 months. This uptrend channel serves as a “Lead-in” phase in which prices move in an orderly manner and the range of waves defines the lead-in height. In late April, the SPX started to advance into the “Bump” phase with fast rising prices following a sharp bump trendline having an angle large than 45 degrees.

Although prices typically could reach a bump high with at least twice the lead-in height, the price target projected at the 2nd Parallel Line is negated once prices cross below the Bump Trendline (green line). Testing the lead-in trendline should be next. If prices break below the lead-in trend line, the bearish “Run (down)” phase could start.

SPX Bump 5-31-2013



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. It shows that the SPX currently is in primary wave [3], intermediate wave (3), and the beginning of minor wave 3. Superposition of the third waves in multiple degrees typically carries a strong 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 5-31-2013 (Weekly)



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

The following daily chart of the S&P 500 index shows minor wave 3 has been in a well-defined bullish uptrend channel for over six months. Inside wave 3, it should have finished sub-waves of minute waves [i], [ii], [iii], [iv], [v], [vi] and [vii].

This strong bull market has made wave 3 have a special extended wave formation: a possible structure with nine waves rather than five waves. It means that wave 3 may have waves [vi], [vii], [viii] and [ix] after wave [v]. Currently it should be in wave [viii].

SPX Elliott Wave 5-31-2013 (Daily)



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 5-31-2013

This year each week I will talk about one pair of markets in the table above. This week let’s check the U.S. stock market vs. the international stock market again.

U.S. Stock Market vs. International Stock Market: The chart below is a daily chart in seven-month time span for the ratio of the Wilshire 5000 Index to the Dow Jones World Stock Index. The previous downtrend of the ratio ended in late December. The ratio has been in an advance since then. It indicates that the U.S. stock market has been outperformed the international stock market so far this year. The U.S. market outperforming typically corresponds to strengthening in the U.S. dollar. The ratio the U.S. stock market to the international stock market is a leading indicator for the U.S. dollar. Currently the ratio is forming a 5-month uptrend channel, and it is testing the upper boundary of the channel.

W5000 vs World 5-31-2013



Gold in a 7-Week Horizontal Trading Range

The daily chart shows that the gold index is forming a 7-week horizontal trading range between 1340 and 1480. Prices should be in sideways before a breakout from the trading range.

GOLD 5-31-2013



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 5-31-2013 (Monthly)



Gold/Silver Mining Stocks in “Bump and Run Reversal Bottom” Pattern

Gold/silver mining stocks are in a possible “Bump and Run Reversal Bottom” pattern, i.e., the exact opposite of the SPX’s “Bump and Run Reversal Top” pattern discussed above. The 6-month downtrend channel serves as a “Lead-in” phase in which prices move in an orderly manner and the range of price waves defines the lead-in height. In last two months, prices fell into the “Bump” phase with fast declining prices following a sharp downtrend-line slope with an angle large than 45 degrees.

Although prices typically could reach a bump low with at least twice the lead-in height, the price target projected at the 2nd Parallel Line is negated once prices cross above the Bump Trendline (red line). Testing the lead-in trendline should be expected. If prices break above the lead-in trend line, the bullish “Run (up)” phase could start.

XAU 5-31-2013

HUI 5-31-2013



Crude Oil Forming 11-Month Trading Range

Crude oil is forming an 11-month horizontal trading range between 86 and 98. Prices should be in sideways before a breakout from the trading range.

Oil 5-31-2013



US Dollar Forming a 4-Month Rising Wedge

The U.S. dollar is forming a 4-month rising wedge pattern. Prices could be in sideways inside the wedge.

USD 5-31-2013



US Treasury Bond Formed 12-Month Bearish Downtrend Channel

The 30-year U.S. treasury daily chart has formed a 12-month bearish downtrend channel. Now it is near the lower boundary of the channel, and prices could rebound.

USB 5-31-2013



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 5-31-2013



Sector Performance Ranking with Bank 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 3.86% above the EMA89. Outperforming sectors are Banks (9.35%), Biotech (8.66%), and Semiconductors (6.36%). Underperforming sectors are Precious Metals (-10.56), Real Estate (-2.74%), and Utilities (-2.32%). The Russell 2000 Small-cap is outperforming and the Dow Jones Industrial is underperforming.

Sector 5-31-2013



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 5-31-2013
  1. June 10, 2013 at 11:32 am

    The majority of the Public will soon wake up and join the rush to return to PM’s, as investors realize that they have been played by the Central Banks in the name of Fiscal Recovery (Theirs Not Ours)…

  2. June 10, 2013 at 11:17 am

    Beware all those that encourage you to divest your PM’s just because the Central Bankers are fiddling with the charts most use to track the relationship of PM’s to the US$.

    I believe we are seeing a Global effort to drive PM’s downward so that the big Central Banks can scoop most of it up at bargain prices, so they can further promote the use of their own paper money!

    The long view of PM’s is one of security, not PM bashing by those printing paper money…

  3. June 3, 2013 at 7:01 pm

    The Big Banks and their friend the Central Banks are flexing their fiscal muscles to remind all the little people who is running the World.

    US BANKS REPORT RECORD EARNINGS OF $40.3B FOR Q1
    http://bigstory.ap.org/article/us-banks-report-record-earnings-403b-q1
    snip
    WASHINGTON (AP) — U.S. banks earned more from January through March than during any quarter on record, buoyed by greater income from fees and fewer losses from bad loans.

    Everybody better start exercising, since we all will be bowing (to them) now more than ever before!

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