06/24/2013 – Market Update
Market in Correction
The broad market instability index spikes up. The S&P 500 index is in a corrective wave, and it could retrace to a price range between 1552 and 1476. The broad stock market should be in a short-term bearish time-window until 7/8/2013.
Table of Contents
- Broad Market Instability Index Spikes Up
- Intermediate-Term Picture of the S&P 500 Index
- Long-Term Picture of the S&P 500 Index
- Short-Term Picture of the S&P 500 Index
- Market Ratio and Competitive Strength
- Gold Broke Below 9-Week Descending Triangle
- Long-Term Picture: Silver Still Has Room to Fall
- Gold/Silver Stocks in 10-Month Downtrend Channel
- Crude Oil Bearish Forming 11-Month Trading Range
- US Dollar Forming 4-Month Symmetrical Triangle
- US Treasury Bond Broke Below 12-Month Bearish Downtrend Channel
- Asset Class Performance Ranking with U.S. Dollar Leading
- Sector Performance Ranking with Bank Sector Leading
- BRIC Stock Market Performance Ranking with the Brazilian Market Lagging
Broad Market Instability Index Spikes Up
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, spiked to 217 on 6/24/2013 (up from 10 the previous week) which is above the panic threshold level of 43 and indicates a bearish market. The broad market turned to bearish. Based on the forecast of the Leading-Wave Index (LWX), the broad market should be in the short-term bearish time-window until 7/8/2013 (see the second table above). The daily chart below has the Wilshire 5000 index with both the BIX and the Coppock Curve momentum indicators. The current market status is summarized as follows:
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.
From mid-November to mid-April, the SPX was in a uptrend channel for about 5 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.
Last week the SPX broke below the lead-in trendline and got into the bearish “Run” phase. It may look for a support at the 1st Target Line.
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 minor wave 4.
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.
The S&P 500 index has finished minor wave 3. Now it should be in minor wave 4. Minor wave 4 is a corrective wave, and it may carry the SPX down to a price range between 1552 (38% retracement) and 1476 (62% retracement).
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:
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. One week ago the ratio broke above the upper boundary of the 5-month uptrend channel. It could be a setup for a “Bump and Run Reversal Top”, and now it should be in the “Bump” phase and above the Bump Trendline.
The gold index broke below the horizontal boundary of the 9-week Descending Triangle. The downside price target is projected at 1265 based on this triangle breakout.
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.
Gold/silver mining stocks are in a 10-month bearish downtrend channel.
Crude oil is forming an 11-month horizontal trading range between 86 and 98. It is going to test the upper boundary of the trading range. Crude oil could become bullish once prices break above the upper boundary of the range.
The U.S. dollar is forming a 4-month symmetrical triangle pattern. Prices could swing inside the triangle before next breakout from the triangle.
The 30-year U.S. treasury bond broke below the lower boundary of the 12-month downtrend channel. This breakdown is a very bearish sign for the bond.
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently the U.S. dollar is outperforming, and gold is underperforming.
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 0.84% below the EMA89. Outperforming sectors are Banks (1.41%), Healthcare (0.80%), and Internet (0.71%). Underperforming sectors are Precious Metals (-22.02%), Home Construction (-10.09%), and Real Estate (-7.94%). The Russell 2000 Small-cap is outperforming and the S&P 400 mid-cap 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 Brazilian market is lagging.
