Market Challenges for New Highs

The S&P 500 index is in the early part of the last short-term impulse wave (minor wave 5) inside the supper bullish intermediate wave 3. The next price target has been updated to 1700. The broad stock market should be in a short-term bullish time-window until 7/17/2013.

Table of Contents

• Broad Market is Short-Term Bullish Time-Window
• Short-Term Picture of the S&P 500 Index
• Long-Term Picture of the S&P 500 Index
• Market Ratio and Competitive Strength
• Gold in 3-Month Falling Wedge Pattern
• Long-Term Picture: Silver Still Has Room to Fall
• Gold/Silver Stocks in 10-Month Downtrend Channel
• Crude Oil Bullish Breakout from 11-Month Trading Range
• US Dollar Forming 4-Month Broadening Symmetrical Triangle
• US Treasury Bond Broke Below 12-Month Bearish Downtrend Channel
• Asset Class Performance Ranking with Crude Oil Leading
• Sector Performance Ranking with Biotech Sector Leading
• BRIC Stock Market Performance Ranking with the Brazilian Market Lagging

Broad Market is in Short-Term Bullish Time-Window

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 0 on 7/12/2013 (down from 14 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 bullish time-window until 7/17/2013 (see the second table above). The daily chart below has the Wilshire 5000 index with both the BIX and the Momentum indicators. The current market status is summarized as follows:

Short-Term Picture: S&P 500 Index Bullish Breakout from 3-Month Descending Broadening Wedge

Last week the S&P 500 index broke above the upper boundary of the 3-month Descending Broadening Wedge. The upside price target was set at the top of the wedge, 1680. Now this price target has been reached. The market may breakout further to a new high. The immediate next target is projected at 1700 for the SPX.

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 5.

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 corrective wave, i.e., intermediate wave (4), before the price target of 1770.

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, and the US market vs. the world market.

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:

Each week I 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 outperforming the international stock market so far this year. In June 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” pattern. Now it is in the “Bump” phase and above the Bump Trendline. This is a bullish sign for a strong U.S. market.

The gold index is forming a 3-month Falling Wedge pattern. Gold could become bullish once prices break above the upper boundary of the wedge.

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 broke above the upper boundary of the 11-month horizontal trading range. Crude oil becomes bullish with an upside price target at 110.

The U.S. dollar is forming a 4-month Broadening Symmetrical Triangle pattern. Prices could large swins 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 5.47% above the EMA89. Outperforming sectors are Biotech (11.96%), Internet (10.04%), and Banks (8.42%). Underperforming sectors are Precious Metals (-16.52%), Home Construction (-1.17%), and Real Estate (-0.07%). The Russell 2000 Small-cap is outperforming and the Dow Jones Industrial 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.