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01/11/2014 – Market Update

January 11, 2014 Leave a comment Go to comments

Gold in a Technical Rebound

Gold, silver, and their mining stocks set up for a technical rebound. We look for a bullish breakout from gold 15-month descending broadening wedge. The broad stock market is projected to turn into a short-term bearish time-window and last until 1/27/2014.

Table of Contents

Broad Market Getting into a Short-Term Bearish 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 LWX Indicator in Last Four Weeks (Actual)
Last 4 wks LWX 1-10-2014

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 1-10-2014

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 14 on 1/10/2014 (up from 5 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 1/27/2014 (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:

Short-Term Cycle: downward
Date of Next Cycle Low: 1/27/2014
Broad Market Instability Index (BIX): 14, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

W5000 1-10-2014

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 2063 based on 1.0 extension of wave [1].

SPX Elliott Wave 1-10-2014 (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 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.

SPX Elliott Wave 1-10-2014 (Daily)

Sector Performance Ranking with Biotech 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 4.67% above the EMA89. Outperforming sectors are Biotech (8.71%), Home Construction (8.48%), and Internet (8.39%). Underperforming sectors are Telecommunication (-1.69%), Precious Metals (-1.48%), and Real Estate (0.30%).

Sector 1-10-2014

Major Global Market Performance Ranking

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.

Global Markets 1-10-2014

Gold in 15-Month Descending Broadening Wedge Pattern

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. If prices break above the upper boundary of the wedge, gold could become bullish.

GOLD 1-10-2014

Long-Term Picture: Silver in a 3-Year Falling Wedge Pattern

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.

Silver 1-10-2014 (Weekly)

Gold/Silver Mining Stocks Forming 8-Month Horizontal Trading Range

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

XAU HUI 1-10-2014

Crude Oil Bearish Breadown from 2-month Rising Wedge

After a bearish breakdown from a 2-month rising wedge, crude oil has been bearish. It is still testing the previous low at 92.

Oil 1-10-2014

US Dollar Forming 2.5-Month Triangle Pattern

The U.S. dollar is forming a 2.5-month triangle pattern. It should be neutral before it breaks out from the triangle.

USD 1-10-2014

Long-Term Picture of US Treasury Bond

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.

USB 1-10-2014

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 oil is underperforming.

Asset 1-10-2014
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