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
• 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 Forming 2.5-Month Triangle Pattern
• Long-Term Picture of US Treasury Bond
• Asset Class Performance Ranking with Equity Leading

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 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:

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.

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 4.67% 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%).

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

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. Please note that a likely double bottom pattern between July and December could set up a potential bullish reversal.

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

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

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.