Broad Stock Market Correction Continues

As the complex correction of 2014 continues to extend, the S&P 500 index tumbles into a new A-B-C corrective pattern right after the short-lived X wave. The biotech and internet sectors lead the stock market lower. The Broad Market Instability index (BIX) surging above the panic threshold and the major U.S. stock market indices dropping below the 89-day exponential moving average are both very bearish indications. The broad stock market is projected to be in a short-term bearish time-window until 4/23/2014.

Table of Contents

• Broad Market Instability Index Started to Surge
• Sector Performance Ranking with Utilities Sector Leading
• S&P 500 Index in a Complex Correction
• German DAX Index: Elliott Wave
• India Bombay Stock Exchange Index in 8-Month Rising Wedge
• Shanghai Composite Index: Long-Term Picture
• Major Global Markets Performance Ranking
• US Dollar Forming 5-Month Trading Range
• US Treasury Bond Broke above 2-Month Trading Range
• Gold Forming 4-Month Ascending Broadening Wedge Pattern
• Silver Continues in 3-Year Falling Wedge Pattern
• Gold/Silver Stocks Forming 4-Month Ascending Broadening Wedge Pattern
• GDX Gold Miners ETF Forming 4-Month Ascending Broadening Wedge Pattern
• Crude Oil Forming 5-Week Ascending Broadening Wedge
• DBA Agriculture ETF Forming 6-week Horizontal Trading Range
• Asset Class Performance Ranking with Agriculture Leading

Broad Market Instability Index Started to Surge

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, surged up to 92 on 4/11/2014 (up from 20 the previous week) which is above the panic threshold level of 42 and indicates a bearish market. The Wilshire 5000 index has crossed below its 89-day moving average. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market should be in a short-term bearish time-window until 4/23/2014 (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 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 1.03% below the EMA89. Outperforming sectors are Utilities (4.56%), Oil Equipment (2.42%), and Energy (2.31%). Underperforming sectors are Biotech (-9.69%), Internet (-8.03%), and Wireless Communication (-2.78%).

As shown in a daily chart below, since the beginning of this year, the S&P 500 index has been in a correction with intermediate corrective wave (4) following a fifth-wave extension (Ending Diagonal) developed in late 2013. During the first three months of this year, wave (4) developed an A-B-C corrective pattern with expanded wave A and wave B, then triangle-trapped wave C.

The upward wave, which pushed the S&P 500 index up to a new record high early this month, is characterized as Elliott wave X, a wave linking two corrective patterns. Right after wave X, another new A-B-C corrective pattern should be developed. Then intermediate wave (4) would become a complex correction to last about five to six months.

Currently the S&P 500 index is in wave A of the new A-B-C corrective pattern. Last week wave A broke below 1840 which is the horizontal boundary of a 7-week ascending broadening triangle. This bearish breakdown suggests that wave A could go down to 1790.

More information about Elliott Wave Complex Corrections can be found here.

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 A.

Currently it is forming a horizontal trading range between 9000 and 9750. Wave C was truncated at the lower boundary of the trading range, and wave X was truncated at the upper boundary of the trading range. Now the DAX is in wave A of the new A-B-C corrective pattern into a complex correction.

The following daily chart shows that the India Bombay Stock Exchange 30 Sensex Index is forming a 8-month rising wedge pattern. The performance of the Bombay index has been ranked on the top among the major global stock markets for last six weeks. Currently the index is near the upper boundary of the wedge.

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 another technical gauge to measure moves of the index. The index has defended the level of 2000 very well. Currently prices are sharply approach the upper boundary of the triangle again. Please note that a long-awaited bullish breakout from both the descending triangle and the falling wedge could be near. Once prices penetrate the upper boundaries, the Shanghai index could advance explosively.

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 Japanese market is underperforming.

The U.S. dollar is forming a 5-month trading range between 79.3 and 81.5. Now it may test the lower boundary of the trading range.

The following chart is a daily chart of the 30-year U.S. treasury bond. It has formed a 2-month horizontal trading range between 131.5 and 134. Last Friday prices broke above the upper boundary of the trading range. This bullish breakout suggests an upside price target at 136.5.

The gold index is forming a 4-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 4-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 4-month ascending broadening wedge pattern. A new price target will be projected after prices break out of the wedge.

Crude oil is forming a 5-week ascending broadening wedge pattern. Currently it is near the upper boundary of the wedge. No price target is projected before a breakout from the wedge.

The following chart shows that the PowerShares DBA Agriculture ETF is forming a 6-week horizontal trading range between 27.75 and 28.75. No price target is projected before a breakout from 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 agriculture is outperforming and the US dollar is underperforming.