The Broad Stock Market Still in Consolidation

No significant changes from the previous update, except the short-term time-window of the broad stock market became neutral from bearish. The short-term neutral time-window is expected to last until 8/30/2013.

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 Bullish Breakout from 7-Week Ascending Triangle
• Long-Term Picture: Silver in a 2.5-Year Falling Wedge Pattern
• Gold/Silver Stocks Forming 4-Month Inverted Roof Pattern
• Crude Oil in 8-Week Trading Range
• US Dollar in 5-Month Broadening Symmetrical Triangle
• US Treasury Bond Foming a Bump-and-Run Reversal Bottom Pattern
• Asset Class Performance Ranking with Crude Oil Leading
• Sector Performance Ranking with Internet Sector Leading
• BRIC Stock Market Performance Ranking with the Brazilian Market Leading

Broad Market in Short-Term Neutral Time-Window

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 18 on 8/23/2013 (down from 49 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 would be in the short-term neutral time-window until 8/30/2013 (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 in a 4-Month Uptrend Channel

The S&P 500 index has formed a 4-month bullish uptrend channel. A pullback or a downward wave towards the lower boundary of the channel around 1600 is expected.

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 (4), and minor wave A.

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.

Intermediate wave (4) should have started as the SPX is in minor wave A. Please note that Intermediate wave (4) is an intermediate-term corrective wave and minor wave A is a short-term corrective wave.

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 swings up towards 1.70 to make Euro stronger than the US dollar.

The gold index is formed a 7-week bearish ascending triangle on the daily chart. Recently prices broke above the horizontal resistance line and gold became short-term bullish. Based on this breakout from the ascending triangle, the upside price target is estimated at 1462.

The silver index has formed a 2.5-year falling wedge pattern. Now prices are near the lower boundary of the wedge. Silver will remain bearish with range-bounded swings before a breakout from the wedge.

Gold/silver mining stocks broke above the upper boundary of the 10-month downtrend channel recently. Now they are forming a 4-month inverted roof pattern. They could become bullish once prices break above the horizontal resistance line of the inverted roof.

Crude oil has been in consolidation and it has formed a 8-week trading range between 103 and 108. Prices should be in sideways before a breakout from the trading range.

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

The 30-year U.S. treasury bond is forming a Bump-and-Run Reversal Bottom Pattern. Now it is in the bump phase.

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 U.S. treasury bond 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 1.99% above the EMA89. Outperforming sectors are Internet (6.65%), Biotech (4.59%), and Precious Metals (3.65%). Underperforming sectors are Home Construction (-10.20%), Real Estate (-5.77%), and Telecommunication (-3.06%). The Nasdaq 100 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 leading.