02/16/2014 – Market Update
Gold/Silver in Intermediate-Term Recovery
Gold, silver, and their mining stocks all had a powerful breakout from their major technical resistance last week. As a “safe haven” currency, the strengthening Japanese yen this year has had a magic “Butterfly Effect” to entail gold/silver sector. In this report, a new chart of the Japanese yen is added with an Elliott Wave analysis. The broad stock market is in upward wave B which is the middle part of an intermediate correction. The short-term time-window will remain bullish until 2/25/2014.
Table of Contents
- Broad Market in 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 Biotech Sector Leading
- Major Global Markets Performance Ranking
- Gold Bullish Breakout from 7-Month Descending Triangle
- Silver Bullish Breakout from 7-Month Descending Triangle
- Gold/Silver Stocks Bullish Breakout from 7-Month Descending Triangle
- Crude Oil in 3-Month Trading Range
- US Dollar Bearish Downward Breakout from 3-Month Ascending Triangle
- Japanese Yen in a Bullish Intermediate Correction
- US Treasury Bond in 7-Month Trading Range
- Asset Class Performance Ranking with Gold Leading
Broad Market in 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 2/14/2014 (down from 32 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 stock market is in a short-term bullish time-window until 2/25/2014 (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 Elliott Wave count, in a five-year time span. There are three degrees of waves: Primary, Intermediate, and Minor waves in this weekly chart. The SPX currently is in primary wave [3], intermediate wave (4), and minor wave B.
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].
Please note that primary wave [3] indicates a long-term bullish uptrend while intermediate wave (4) presents bearish corrective wave in the intermediate-term.
As shown in a daily chart below, the S&P 500 index had its major uptrend with powerful intermediate wave (3) composed of a 1-2-3-4-5 sub-wave impulse sequence from June 2012 to December 2013. Since the beginning of this year, the S&P 500 index has turned into an intermediate correction with intermediate wave (4). For a simple correction, it would contain an A-B-C wave corrective sequence in the minor wave degree.
This whole A-B-C correction process will possibly last about three months, i.e., wave A down in January, wave B up in February, and wave C down again in March. How high can current wave B go? Since the short-term bullish time-window is open until 2/25/2014 based on the LWX forecast, bulls still have time to push wave B higher against the previous high of minor wave 5.
Once wave B is mature, Wave C would continue the correction to make new lows below the end of wave A. A full range decline is projected down to 1640 because the correction ideally should end near the low of prior minor wave 4.
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 3.46% above the EMA89. Outperforming sectors are Biotech (11.20%), Home Construction (9.30%), and Internet (8.39%). Underperforming sectors are Telecommunication (-1.62%), Consumer Goods (0.47%), and Energy (0.69%).
The table below is the percentage change of major global stock market indexes against the 89-day exponential moving average (EMA89). Currently the German, Canadian, U.S., and Australian markets are outperforming. The UK, China, and Indian markets are neutral. The Japanese, Brizilian, Russian, and Hong Kong markets are under water.
The gold index broke above the upper boundary of the 7-month Descending Triangle pattern last week. This breakout made gold bullish with an upside price target projected at 1420.
For your reference, it might be interesting to see what my call two years ago was on gold top: Wake Up Call – Gold is in a 18-Month “Bump-and-Run Reversal Top”.
Last week, the silver index had a powerful bullish breakout from the 7-month Descending Triangle pattern. An upside price target is projected at 24.50.
For your reference, it might be interesting to see what my call two years ago was on silver bubble: Why Silver Could Drop Below $30/ozt?
Gold/silver mining stocks had a bullish breakout forming a 7-month descending triangle pattern like gold and silver did last week. Now they become bullish with an upside price target at 114 for the XAU.
Last Monday, I posted a special report about the GDX Market Vectors Gold Miners ETF. It had a powerful upward breakout from its 10-month falling wedge pattern. Together with a breakaway gap and an one-day 3.3% advance, that bullish breakout of the falling wedge puts GDX on a launch pad. A $29 price target is projected for GDX. This price target implies a potential 20% gain measured from the breakout price.
Crude oil is forming a 4-month trading range between 92 and 100. Recently it has been in an upswing towards the upper boundary of the trading range. Now it is testing the horizontal resistance around 100. A “W” or double-bottom pattern would be confirmed if prices break through the upper horizontal line.
The U.S. dollar broke below the lower boundary of a 3-month ascending triangle pattern. This downward breakout made the dollar bearish. A downside price target is projected at 79.20.
As shown in the weekly chart below, the Japanese yen had a dramatic decline over two years until last December. The decline went with a five-wave Elliott wave structure. The fifth down wave ended in December. Now the yen is in an upward intermediate corrective wave, and it possibly can go up to 102 near the high of prior wave 4.
Due to a long-time positive relationship between the yen and gold, the yen (as a “safe haven” currency) is a the most important leading indicator of gold than any other factors. The bullish intermediate correction of the yen has boosted gold to three-month high, would have more.
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 potential “W” or double bottom pattern. Currently it is testing the upper boundary of the trading range.
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently gold is outperforming and the U.S. dollar is underperforming.
