The Broad Stock Market is at a Critical Juncture

The development of a 2-month broadening triangle (megaphone) formation on the S&P 500 index alerts a possible partial-rising if the B wave fails to drive prices up to new highs at the upper boundary of the broadening triangle. The internet and biotech sectors continue having the worst performance ranking this week, and their weakening compresses the broad stock market to move higher. The broad stock market is projected to be in a short-term neutral time-window until 5/2/2014.

Table of Contents

• Broad Market is Turning into a Short-Term Neutral Time-Window
• Sector Performance Ranking with Oil Equipment 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 6-Month Trading Range
• US Treasury Bond Forming 3-Month Ascending Broadening Wedge
• Gold Forming 6-Week Descending Triangle Pattern
• Silver Continues in 3-Year Falling Wedge Pattern
• Gold/Silver Stocks Forming 4-Month Head-and-Shoulders Pattern
• GDX Gold Miners ETF Forming 4-Month Head-and-Shoulders Pattern
• Crude Oil Forming 7-Week Ascending Broadening Wedge
• DBA Agriculture ETF Bullish Breakout from 7-week Trading Range
• Asset Class Performance Ranking with Agriculture Leading

Broad Market is Turning into a Short-Term Neutral 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 21 on 4/25/2014 (up from 7 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. The momentum indicator turns negative although the Wilshire 5000 index is still above its 89-day moving average. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market is in a short-term neutral time-window until 5/2/2014 (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 0.95% above the EMA89. Outperforming sectors are Oil Equipment (7.03%), Utilities (6.84%), and Energy (6.14%). Underperforming sectors are Internet (-7.39%), Biotech (-4.73%), and Wireless Communication (-3.81%).

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 has been developing. Intermediate wave (4) with a complex correction could last about five to six months.

Currently the S&P 500 index is in a 2-month broadening triangle (megaphone) pattern with increasingly widening price-swings having higher highs and lower lows. The horizontal center line of the triangle is at the level of 1860. Now the index is near the center line and is set to easily go to either way. If wave B of the new A-B-C corrective pattern fails to reach the upper boundary of the broadening triangle for making a new high of the S&P 500 index, a partial rising can be formed and it will imply an immediate downward breakout at the lower boundary of the triangle with wave C.

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 B.

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 B of the new A-B-C pattern after wave X.

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 eight 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 for last 14-months. It may test that level again.

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 market is underperforming.

The U.S. dollar is forming a 6-month trading range between 79.3 and 81.5. The lows in March and April near the lower boundary of the trading range could form a potential “W” or double bottom pattern.

The following chart is a daily chart of the 30-year U.S. treasury bond. It is forming a 3-month ascending broadening wedge pattern. Prices are still range-bounded between two boundaries of the wedge.

The gold index is forming a 6-week descending triangle pattern. The next move of gold depends on the direction of a breakout from the triangle. It is neutral before a triangle breakout.

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 triangle.

Gold/silver mining stocks are forming a 4-month head-and-shoulders pattern. A downward breakout target is projected at the previous low around 80.

The GDX Market Vectors Gold Miners ETF is forming a 4-month head-and-shoulders pattern. A downward breakout target is projected at 21.

Crude oil is forming a 7-week ascending broadening wedge pattern. Currently it is near the lower boundary of the wedge. If it breaks below the lower boundary of the wedge, prices could drop to 98 near the low in March.

The following chart shows that the PowerShares DBA Agriculture ETF has formed a 7-week horizontal trading range between 27.75 and 28.75. Last week it broke above the upper boundary of the trading range. An upside price target is projected at 30.

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.