Watch Closer for Different Market Dynamics in 2014

2014 could be much different as we expect more dynamics in market movement. We are expanding the weekly coverage to major global market indexes of Canada, UK, Germany, Japan, Australia, and Hong Kong. Monday, 1/6/2014, should be the last day for the previous short-term bullish time-window. The broad stock market is projected to turn into a short-term bearish time-window and last until 1/23/2014. You will find out why we are looking for reversals on the S&P 500 index and gold in the intermediate-term.

Table of Contents

• Broad Market Ending a Short-Term Bullish Time-Window
• Long-Term Picture of the S&P 500 Index
• Short-Term Picture of the S&P 500 Index
• Sector Performance Ranking with Home Construction Sector Leading
• Major Global Markets Performance Ranking
• Gold in 15-Month Descending Broadening Wedge
• Long-Term Picture: Silver in 3-Year Falling Wedge Pattern
• Gold/Silver Stocks Forming 8-Month Horizontal Trading Range
• Crude Oil Bearish Breakdown from 2-Month Rising Wedge
• US Dollar Bullish Breakout from 6-Month Bearish Downtrend Channel
• Long-Term Picture of US Treasury Bond
• Asset Class Performance Ranking with Equity Leading

Broad Market Ending a Short-Term Bullish Time-Window

The LWX (Leading Wave Index) is Nu Yu’s proprietary leading indicator for US equity market. LWX>+1 indicates bullish (green); LWX< -1 indicates bearish (red); The LWX between +1 and -1 indicates neutral (yellow).

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 5 on 1/3/2014 (up from 4 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 end the short-term bullish time-window on 1/6/2014. A short-term bearish time-window would start and would last until 1/23/2014 (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:

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 2063 based on 1.0 extension of wave [1].

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.

Please note that minor wave 4 is counted slightly different than before. One of my readers suggested minor wave 4 was an a-b-c wave and bottomed at the low of August 2013. That would then show clearly 5 subwaves up to our current top. After I looked at it carefully, the a-b-c wave structure in minor wave 4 actually is a “running flat” pattern. I think this wave counting is better than what I had.

Although the 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.

Intermediate corrective wave (4) should be due to come. The January Barometer soon will tell us more.

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 4.49% above the EMA89. Outperforming sectors are Home Construction (8.63%), Internet (7.99%), and Biotech (6.56%). Underperforming sectors are Utilities (-1.42%), Real Estate (-1.32%), and Precious Metals (-1.18%).

This year I plan to expand my weekly coverage to major global market indexes. Those have been added are Canada, UK, Germany, Japan, Australia, and Hong Kong. Currently I am working on “color guard” for each index. Hopefully it can be released soon. The table below is the percentage change of major global stock market indexes against the 89-day exponential moving average (EMA89). Currently the Japanese market is leading and the Chinese market is lagging.

The gold index is in a 15-month Descending Broadening Wedge pattern on the daily chart. Inside this broadening wedge, gold is also forming a potential double bottom between July and December. The similar pattern of a likely double bottom appears on the silver index and the gold/silver mining stock indexes XAU and HUI too. The price level of 1175 could be an intermediate-term bottom although gold remains bearish before a bullish reversal or a bullish breakout from the broadening wedge.

The silver index has formed a 3-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 set up a potential bullish reversal.

Gold/silver mining stocks are forming a 8-month horizontal trading range. They are still weak and are testing the lower boundary of the trading range. Please note that a likely double bottom pattern between July and December could set up a potential bullish reversal.

As I mentioned last week, a rising wedge after a downtrend may be not a bullish sign. Crude oil could become bearish once it breaks below the lower boundary of the wedge. It happens. Crude oil may retest the previous low at 92.

The U.S. dollar has been bearish in a 6-month downtrend channel. Now it broke above the upper boundary of the channel. This breakout should be bullish to the dollar.

The following chart is a monthly chart of the 30-year U.S. treasury bond for last 30 years. It shows a long-term bullish uptrend channel across a timespan of 30 years. However, in the most of 2013 it was in a bearish downward swing inside the channel. Currently it still moves towards the lower boundary of the channel. 125 should be the next level to check if it can find a support.

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 oil is underperforming.