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01/19/2014 – Market Update

January 19, 2014 Leave a comment Go to comments

A Potential “W” Bottom Pattern for Bond, Gold, and Oil

It seems that a “W” or double bottom pattern is emerging in several beaten-down sectors such as the US treasury bond, gold, silver, mining stock indexes, and crude oil. This potential base formation may set up a short-term or even intermediate-term technical rebound for those sectors. Meanwhile, the broad stock market is choppy near its all time high, and it should be in a short-term bearish time-window until 1/27/2014.

Table of Contents

Broad Market Getting in 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 1-17-2014

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 1-17-2014

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 21 on 1/17/2014 (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 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): 21, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

W5000 1-17-2014

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 Elliott Wave count, in a five-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. Primary wave [3] currently is in an extension and it could extend to the next price target at 2063 based on 1.0 extension of wave [1].

SPX Elliott Wave 1-17-2014 (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 1-17-2014 (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 4.09% above the EMA89. Outperforming sectors are Biotech (10.06%), Internet (8.54%), and Healthcare (6.78%). Underperforming sectors are Telecommunication (-1.01%), Utilities (0.51%), and Real Estate (0.55%).

Sector 1-17-2014

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 German market is leading and the Chinese market is lagging.

Global Markets 1-17-2014

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 “W” or 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 1-17-2014

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 potential “W” or double bottom pattern in developing near $19 level could set up a potential bullish reversal.

Silver 1-17-2014 (Weekly)

Gold/Silver Mining Stocks Forming 9-Month Horizontal Trading Range

Gold/silver mining stocks are forming a 9-month horizontal trading range. Please note that a potential double bottom pattern between July and December could set up a bullish reversal.

XAU HUI 1-17-2014

Crude Oil in 2-Month Trading Range

Crude oil is forming a 2-month trading range between 92 and 100. Last week it bounced off the lower boundary of the trading range. Crude oil should be in an upswing towards the upper boundary of the trading range.

Oil 1-17-2014

US Dollar Forming 2.5-Month Ascending Triangle Pattern

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

USD 1-17-2014

US Treasury Bond in 7-Month Trading Range

The following chart is a daily chart of the 20-year U.S. treasury bond ETF. It is forming a 7-month horizontal trading range between 101 and 108. It also forms a likely “W” or double bottom pattern. Currently it is in an upswing towards the upper boundary of the trading range.

TLT 1-17-2014

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 1-17-2014
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