06/30/2013 – Market Update
Correction is Not Over Yet
Although the broad stock market is in a correction mode, it still maintain a relative strong strength in comparison to gold and bonds. The broad stock market should be in a short-term bearish time-window until 7/5/2013.
Table of Contents
- Broad Market is Testing 89-Day Moving Average
- 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 in 8-Year Bump and Run Reversal Top Pattern
- 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 Crude Oil Leading
- Sector Performance Ranking with Bank Sector Leading
- BRIC Stock Market Performance Ranking with the Brazilian Market Lagging
Broad Market is Testing 89-Day Moving Average
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 40 on 6/28/2013 (down from 106 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 the short-term bearish time-window until 7/5/2013 (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 broad stock market is testing the 89-day exponential moving average. 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.
Recently the SPX broke below the lead-in trendline and entered 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 with minute waves [a], [b], and [c]. It have finished waves [a] and [b]. Now it is in wave [c] which may carry the SPX down to 1525 based on 1.618 extension of wave [a].
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 SPX vs. Gold.
S&P 500 Index vs. Gold: The chart below is a weekly chart having the ratio of the SPX to gold from 1980 to the present. Two technical indicators, the 89-week exponential moving average (EMA89) and the 89-week Williams %R, are used to gauge the trend of the competitive strength between the SPX and gold.
1) After it reached the 12-year cycle low late last year, the ratio has crossed over the EMA89 to the upside, and the slope of the EMA89 has turned positive (heading up). This could be a major trend change of the SPX/Gold ratio. Due to the ratio was stretched deeply away from the mean, Now it is on the way to return to the mean. This implies that the SPX/Gold ratio could reach to 2.5 from the current level of 1.3, i.e., the SPX would become more expensive in terms of gold in the near future.
2) In the Williams %R window, gold outperforms if the %R indicator moves down into the lower yellow band, or the SPX outperforms if the %R indicator moves up into the upper blue band. Since early this year the %R indicator has stepped into the upper blue band for SPX-outperforming. It looks very similar to what happened in 1995 that the SPX started to become significantly outperforming gold.
The gold index formed an 8-year Bump and Run Reversal Top pattern in the following weekly chart. It could be soon to finish the “Bump” phase once prices breach the lead-in trendline near 1100, and would head towards a more bearish “Run” phase below the lead-in trendline in next one or two years.
The following chart is a monthly chart for silver in 12 years. 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. It may look for a support from the 2nd parallel line.
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently Crude Oil 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 1.44% above the EMA89. Outperforming sectors are Banks (4.98%), Semiconductors (3.40%), and Internet (3.30%). Underperforming sectors are Precious Metals (-18.79%), Home Construction (-7.19%), and Materials (-3.92%). The Russell 2000 Small-cap 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 Brazilian market is lagging.
Leave a Reply
Do you have any idea time period or price level for the completion of Primary Wave 5 on the S+P 500?
David,
Primary Wave 5 could reach 2450 in a time period of next two years.
Nu Yu
When will be the next gold and silver rally?
Roger,
Gold and silver are in a long-term bearish downtrend. They should hit a short-term bottom either late this week or early next week, and may have a short-term counter-trend rally in mid July. But any rally able to go beyond the record high in 2011 is unlikely in five years.
Nu Yu
Would it be possible for you to do a long time chart on the $SPX like you did for Gold…say from 2008 to 2013 showing the respective trendlines?
Wanda,
I have added trendlines on the SPX weekly chart for a relatively longer time-frame. Those trendlines form a bullish uptrend channel for the SPX from 2009 to 2013. Please see the chart at:
http://marketweeklyupdate.com/2013/06/30/06302013-market-update/#SPX-EW
Nu Yu
Thank you!  I was just wondering where the warning line was on the $SPX. You show it on the GOLD long term chart, but not on the $SPX.
For the SPX long-term weekly chart, the upper trendline will become the warning line once prices break above the uptrend channel.
Nu Yu
Then if I understand you correctly, the $SPX will go a lot higher than 1687 up into a sell line. On the gold chart, the sell line looks to be about 1 inch in height from the warning line. If so, where would you see the $SPX going long term?
A long-term price target for primary wave [3] on the SPX is projected at 1770. Here is why: http://marketweeklyupdate.com/2013/06/30/06302013-market-update/#SPX-EW
Nu Yu