Complex Corrections Pose a Challenge to Bulls & Bears

The intermediate-term correction of the broad stock market continues in a sideways market. The minor C wave in the S&P 500 index was trapped in a 4-week symmetrical triangle pattern, suggesting that the current intermediate-term correction could face complexity in a potential extending sideways market if we see an upward minor X wave in the next couple of weeks. The broad stock market should be nearing the end of the short-term neutral time-window, and the next short-term bullish time-window would last until 4/17/2014.

Table of Contents

• Broad Stock Market in Sideways
• Sector Performance Ranking with Oil Equipment 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 in 2-Month Trading Range
• Gold Forming 3-Month Ascending Broadening Wedge Pattern
• Silver Continues in 3-Year Falling Wedge Pattern
• Gold/Silver Stocks Forming 3-Month Ascending Broadening Wedge Pattern
• GDX Gold Miners ETF Forming 3-Month Ascending Broadening Wedge Pattern
• Crude Oil Forming 4-Month Rising Wedge Pattern
• 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 29 on 3/28/2014 (up from 11 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. The broad stock market has moved sideways in several weeks. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market should be near the end of the short-term neutral time-window, and the next short-term bullish time-window would last until 4/17/2014. 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 1.89% above the EMA89. Outperforming sectors are Oil Equipment (5.14%), Semiconductors (5.07%), and Wireless Communication (4.50%). Underperforming sectors are Biotech (-4.72%), Internet (-2.01%), and Precious Metals (-0.42%).

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) has been in an Expanded Flat correction for near three months. After the expanded moves of wave A and wave B, the move of wave C was trapped in a narrow symmetrical triangle. This triangle pattern adds complexity to the development of intermediate wave (4). Depending on which side to breakout from the triangle, there are two scenarios as follows:

Scenario 1 (Downside Breakout)
When prices break to the downside of the triangle, wave C will potentially end much lower than 1740 which is the ending level of wave A. 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.

Scenario 2 (Upside Breakout)
When prices break to the upside of the triangle, wave C will terminate immediately to finish the current A-B-C corrective pattern, and upward wave X will start for developing another new A-B-C corrective pattern. Then the whole intermediate wave (4) will become an extending sideways to last about five to six months.

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 X.

Currently it is forming a trading range between 9000 and 9750. Wave C was truncated at the lower boundary of the trading range. Now it looks like that upward wave X just started.

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 four 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, Chinese, Hong Kong, and Japanese markets are under water.

The U.S. dollar 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 30-year U.S. treasury bond. It is forming a 2-month horizontal trading range between 131.5 and 134. It is neutral inside the trading range. There is no price target projected at this moment.

The gold index is forming a 3-month ascending broadening wedge pattern. A new price target will be projected after prices break out of the wedge.

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 3-month ascending broadening wedge pattern. A new price target will be projected after prices break out of the wedge.

The GDX Market Vectors Gold Miners ETF is forming a 3-month ascending broadening wedge pattern. A new price target will be projected after prices break out of the wedge.

Crude oil is forming a 4-month rising wedge pattern. 107 at the upper boundary of the wedge is projected as a price target.

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. A new price target will be projected after prices break above the upper boundary of the channel.

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 gold is underperforming.