Market Still Topping

Market short-term topping still continues. We may see a sideways market in a couple of weeks. The broad stock market should be in a short-term neutral time-window until 8/2/2013.

Table of Contents

• Broad Market in Short-Term Neutral 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 Forming a 3-Month Downtrend Channel
• Long-Term Picture: Silver in a 2.5-Year Falling Wedge Pattern
• Gold/Silver Stocks in 10-Month Downtrend Channel
• Crude Oil in Consolidation
• US Dollar in 5-Month Broadening Symmetrical Triangle
• US Treasury Bond Bounced Off Recent low
• Asset Class Performance Ranking with Crude Oil Leading
• Sector Performance Ranking with Biotech Sector Leading
• BRIC Stock Market Performance Ranking with the Chinese Market Lagging

Broad Market in Short-Term Neutral Time-Window

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 6 on 7/22/2013 (up from 1 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 neutral time-window until 8/2/2013 (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 Formed a 3-Month Uptrend Channel

After it broke above the upper boundary of the 3-month Descending Broadening Wedge, the S&P 500 index formed a 3-month bullish uptrend channel. Currently prices are near the upper boundary of the channel right below 1700. We may have a pullback as the short-term bullish time-window ends.

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 have a look at the euro vs. the U.S. dollar.

Euro vs. U.S. Dollar: The chart below is a weekly chart for the ratio of the euro to the U.S. dollar in last seven years. The ratio has been in a symmetrical triangle pattern for six years. The central line of the triangle is at 1.7. Currently the ratio is near the lower boundary of triangle, and it may swing up towards 1.70 to make Euro stronger than the US dollar.

The gold index is forming a 3-month bearish downtrend channel. Prices are near the upper boundary of the channel. Gold will remain bearish until prices broke above the upper boundary of the channel.

The silver index has formed a 2.5-year falling wedge pattern. Now prices bounced off the lower boundary of the wedge. We should see range-bounded swings before a breakout from the wedge.

Gold/silver mining stocks are in a 10-month bearish downtrend channel.

After it broke above the upper boundary of the 11-month horizontal trading range, crude oil had a good advance. A pullback is expected.

The U.S. dollar is forming a 5-month Broadening Symmetrical Triangle pattern. Prices should have big swings inside the triangle before next breakout from the pattern.

After it broke below the lower boundary of the 12-month downtrend channel, the 30-year U.S. treasury bond declined to near the second parallel line. Now prices have bounced off the support line. The upper resistance would be at the first 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 5.06% above the EMA89. Outperforming sectors are Biotech (12.09%), Banks (9.01%), and Internet (8.95%). Underperforming sectors are Home Construction (-11.37%), Precious Metals (-6.30%), and Real Estate (-0.70%). 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 Chinese market is lagging.