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12/15/2013 – Market Update

December 15, 2013 Leave a comment Go to comments

Market Cautious

The broad stock market is in a topping process. The S&P 500 index is still bounded with a fifth-wave extension (ending diagonal) pattern which usually appears at key market junctures. The broad stock market is projected to be in a short-term bearish time-window until 12/18/2013.

Table of Contents

Broad Market in a Short-Term Bearish Time-Window

The LWX Indicator in Last Four Weeks (Actual)
Last 4 wks LWX 12-13-2013

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 12-13-2013

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 25 on 12/13/2013 (up from 14 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. Based on the forecast of the Leading-Wave Index (LWX), the broad market should be in a short-term bearish time-window until 12/18/2013 (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 Cycle: downward
Date of Next Cycle low: 12/18/2013
Broad Market Instability Index (BIX): 25, below the panic threshold (bullish)
Momentum Indicator: negative (bearish)

W5000 12-13-2013

Long-Term Picture: Elliott Wave Count on S&P 500 Index

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], projected at 1796 by using 0.618 extension of wave [1], has been reached recently. Primary wave [3] could extend to the next price target at 2060 based on 1.0 extension of wave [1].

SPX Elliott Wave 12-13-2013 (Weekly)

Short-Term Picture: S&P 500 Index in Fifth Wave Extension Pattern

As shown in the daily chart below, the S&P 500 index is forming a 5-month rising wedge pattern. This rising wedge is also characterized as an Ending Diagonal which substitutes for the fifth impulse wave and configures minor wave 5 extension pattern with five minute subwaves i, ii, iii, vi, and v confined between two converging lines. Therefore, the S&P 500 should still be in the late part of intermediate wave (3); intermediate corrective wave (4) should be next.

Although this fifth wave extension pattern could potentially reach 1890, we should keep it in mind that either a fifth wave extension or an ending diagonal implies dramatic reversal ahead. For more information about the ending diagonal, visit: “Ending Diagonal: A Pattern That Sends Shivers Down Investors’ Spines” at Elliott Wave International.

SPX Elliott Wave 12-13-2013 (Daily)

Market Ratio and Competitive Strength

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:

Market Ratios 12-13-2013

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. The ratio currently is testing the central line. Once the ratio breaks above 1.7, it would make the euro stronger than the US dollar.

Euro vs US Dollar 12-13-2013

Gold in 14-Month Descending Broadening Wedge Pattern

The gold index is in a 14-month Descending Broadening Wedge pattern on the daily chart. Now it is also forming a 3-month falling wedge pattern inside the broadening wedge. Gold should be bearish before a breakout from the wedge.

GOLD 12-13-2013

Long-Term Picture: Silver in a 2.5-Year Falling Wedge Pattern

The silver index has formed a 2.5-year falling wedge pattern. Although silver will remain bearish with range-bounded swings before a breakout from the wedge, a likely double-bottom pattern in developing near $19 level could be a potential reversal.

Silver 12-13-2013 (Weekly)

Gold/Silver Mining Stocks Forming 7-Month Horizontal Trading Range

Gold/silver mining stocks are forming a 7-month horizontal trading range. They are still weak and are testing the lower boundary of the trading range.

XAU HUI 12-13-2013

Crude Oil Forming 7-Week Horizontal Trading Range

After a bullish breakout from 13-week downtrend channel, crude oil is forming a 7-week horizontal trading range between 92 and 99. Crude oil should be neutral before it a breakout from the trading range.

Oil 12-13-2013

US Dollar in 5-Month Bearish Downtrend Channel

The U.S. dollar is bearish and it is forming a 5-month downtrend channel.

USD 12-13-2013

US Treasury Bond Forming a Bump-and-Run Reversal Bottom Pattern

The 30-year U.S. treasury bond is forming a Bump-and-Run Reversal Bottom Pattern. It has been in the bearish bump phase since June. In September prices reached the second parallel line with two times of the lead-in channel height. In September, prices crossed above the second parallel line (buy line). This crossing could be a bullish reversal sign for the treasury bond as long as it stays above the second parallel line. A likely double-bottom pattern is also in developing near 130 level.

USB 12-13-2013

Asset Class Performance Ranking with Equity Leading

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently equity is outperforming, and gold is underperforming.

Asset 12-13-2013

Sector Performance Ranking with Internet Sector Leading

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 2.41% above the EMA89. Outperforming sectors are Internet (6.26%), Biotech (5.93%), and Industrals (3.77%). Underperforming sectors are Precious Metals (-8.34%), Real Estate (-4.15%), and Telecommunication (-2.09%).

Sector 12-13-2013

BRIC Stock Market Performance Ranking with the Brazilian Market Lagging

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.

BRIC 12-13-2013
  1. 16golfer
    December 16, 2013 at 5:08 am

    How did you arrive at the 1796 extension for Wave 3? Thank you.

    • December 16, 2013 at 8:35 am

      For SPX, primary wave [1]:
      From 667 (3/6/2009) to 1365 (4/29/2011).

      Primary wave [3]:
      0.618 extension: (1365 – 667) x 0.618 + 1365 = 1796
      1.000 extension: (1365 – 667) x 1.000 + 1365 = 2063

      Nu Yu

      • 16golfer
        December 17, 2013 at 7:12 am

        Is there a margin of error or overthrow on the .618 extension? We were only 18 points above the 1796 at the 1814 high at the end of November.

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