Sideways Markets with Sector Leadership Changes

The broad stock market went nowhere except into a choppy mode during the last two or three weeks, while the US dollar and US treasury were bounded in their recent trading ranges. We have a mixture of a bullish sign from the low readings of the Broad Market Instability Index (BIX) and a bearish sign from the negative momentum. The broad stock market is projected to be in a short-term neutral time-window until it escapes from a sideways market. There is a shadow casting on the stock market from the Biotech, Internet, and Home Construction sectors having recently lost their market leaderships which they maintained for several months. We should be cautious while this market lacks a consistent leadership from leading sectors.

Table of Contents

• Broad Stock Market in Sideways
• Sector Performance Ranking with Semiconductors Sector Leading
• Long-Term Picture of the S&P 500 Index
• Short-Term Picture of the S&P 500 Index
• German DAX Index: Elliott Wave
• India Bombay Stock Exchange Index in 26-Month Bullish Uptrend Channel
• Shanghai Composite Index: Long-Term Picture
• Major Global Markets Performance Ranking
• US Dollar Forming 5-Month Neutral Trading Range
• US Treasury Bond Forming 9-Week Neutral Trading Range
• Gold Forming 1-Year Descending Triangle Pattern
• Silver Continues in 3-Year Falling Wedge Pattern
• Gold/Silver Stocks in 9-Month Descending Triangle Pattern
• GDX Gold Miners ETF Forming 1-Year Downtrend Channel
• Crude Oil in 5-Month Ascending Triangle
• DBA Agriculture ETF Forming 2-Year Downtrend Channel
• Asset Class Performance Ranking with Agriculture Leading

Broad Stock Market in Sideways

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 11 on 3/21/2014 (down from 18 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. The broad stock market has gone nowhere with a choppy mode for a couple of weeks. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market should be in a short-term neutral time-window until it jumps out of a sideways market. Currently we have a mixture of a bullish sign from the low reading of the BIX and a bearish sign from the negative momentum. 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 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 3.15% above the EMA89. Outperforming sectors are Semiconductors (6.84%), Banks (6.30%), and Materials (4.72%). Underperforming sectors are Home Construction (-0.49%), Biotech (0.48%), and Consumer Goods (1.24%).

The Biotech, Internet, and Home Construction sectors have been the market leaders for last several months. But recently all of them lost their market leadership. Especially the Biotech and Home Construction sectors became underperforming the broad stock market.

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 C.

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 an intermediate-term correction.

As shown in a daily chart below, since the beginning of this year, the S&P 500 index has been in an intermediate correction with intermediate wave (4) following a fifth wave extension (Ending Diagonal) developed in late 2013.

Wave (4) would have an A-B-C wave corrective sequence in the minor wave degree. Since wave B has expanded beyond 1850 which is the beginning level of wave A, Wave (4) is no longer a simple correction and it is becoming an Expanded Flat (or Irregular Flat) correction. This whole expanded A-B-C correction process will possibly last more than three months.

Wave C usually has a five subwave structure, i.e., three down waves and two rebound waves. Currently wave C is bounded in a 2-week sideways market. Although wave C will potentially end much lower than 1740 which is the ending level of wave A, but we have to wait to see if it is able to break below the lower boundary (around 1840) of the current sideways range. A full range decline for wave C is projected down to 1650 because the correction ideally should end at the level of the low of wave ii of the fifth wave extension.

The German DAX index has had a very high correlation with the S&P 500 index for last 20 years. Currently it has a similar Elliott Wave structure to the S&P 500 index, and it is in primary wave [3], intermediate wave (4), and minor wave C.

Wave C should be in a five subwave structure with three down waves and two rebound waves. Currently there is a potential 6-month Roof pattern, with a neckline at 9000, in progress. Wave C is projected to end around 8750 near the lower boundary of the intermediate uptrend channel.

The following weekly chart shows that the India Bombay Stock Exchange 30 Sensex Index has been in in a 26-month bullish uptrend channel. The performance of the Bombay index has been ranked on the top among the major global stock markets for last three weeks. It makes the Indian stock market much outstanding from other emerging markets in a downward spiral like Russia, Brazil, and China.

The following weekly chart of the Shanghai Stock Exchange Composite Index shows a 5-year falling wedge pattern. After a long time sliding, it should be close to a point to challenge the upper boundary of the falling wedge possibly in this year. Falling wedges typically build up a bullish bias as it becomes mature. This bullish bias can be realized only when prices break through the upper boundary of the wedge to the upside.

Also the Shanghai index has formed another 14-month descending triangle pattern inside the falling wedge. It provides us one more technical gauge to check moves of the index. Currently it is testing the horizontal boundary of the triangle at the level of 2000. Defending the level of 2000 is very important for the next move of the Shanghai index. The index is neutral before it has a breakout from the triangle pattern.

The table below is the percentage change of major global stock market indexes against the 89-day exponential moving average (EMA89). Currently Indian market is outperforming. The Russian, Japanese, Hong Kong, Brazilian, and Chinese markets are under water.

The U.S. dollar reached recent lows near 79.3 which was just 0.1 points shy of our 79.2 price target. Now the dollar rebounded and it is forming a 5-month trading range between 79.3 and 81.5. The upper boundary at 81.5 of the trading range could be the next price target.

The following chart is a daily chart of the 20-year U.S. treasury bond ETF. It is forming a 9-week horizontal trading range between 105.5 and 109. It is neutral inside the trading range. There is no price target projected at this moment.

The gold index retreated from 1380. Now it is forming a 1-year descending triangle pattern, and is becoming neutral in side the triangle. A new price target would be projected after prices break out of the triangle.

The silver index has formed a 3-year falling wedge pattern. After a long time sliding, it should be close to a point to challenge the upper boundary of the falling wedge. Once it breaks above the the upper boundary of the wedge, silver could become bullish in the intermediate-term. It should be neutral before a breakout from the wedge.

Also silver formed a 8-month descending triangle pattern inside the falling wedge. It provides us another technical gauge to check moves of silver. Currently it is pulling back from the upper boundary of the triangle. It may look for a support around 19 near the horizontal boundary of the wedge.

Gold/silver mining stocks are forming a 9-month descending triangle pattern and becoming neutral in side the triangle. A new price target would be projected after prices break out of the triangle.

The GDX Market Vectors Gold Miners ETF retreated after it reached 28 which was 1 point shy of our price target 29. Now it is forming a 1-year downtrend channel. A new price target would be projected after prices break out of the upper boundary of the channel.

Crude oil is forming a 5-month ascending broadening triangle pattern. It has retreated dramatically from the upper boundary of the triangle. There is no price target projected at this moment.

The following chart shows that the PowerShares DBA Agriculture ETF retreated after it reached our price target 29. Now it is forming a 2-year downtrend channel. There is no new price target projected.

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently agriculture is outperforming and the U.S. dollar is underperforming.