Market Inconsistencies

The Broad Market Instability is dancing around the panic threshold level. The S&P 500 index currently is in downward wave C of the new A-B-C corrective pattern. The stock market has inconsistent price moves not only between large-cap stocks and small-cap stocks but also between value stocks and growth stocks. Also there is an inconsistency in emerging markets like the Indian stock market near a multi-year high but the Chinese stock market near a multi-year low. The broad stock market is projected to be in a short-term bearish time-window until 5/22/2014.

Table of Contents

• Broad Market in a Short-Term Bearish Time-Window
• Sector Performance Ranking with Wireless Communication Sector Leading
• S&P 500 Index in a Complex Correction
• German DAX Index: Elliott Wave
• India Bombay Stock Exchange Index Bullish Breakout from 9-Month Rising Wedge
• Shanghai Composite Index: Long-Term Picture
• Major Global Markets Performance Ranking
• US Dollar Forming 6-Month Trading Range
• US Treasury Bond Reached Our Price Target
• Gold Forming 8-Week Descending Triangle Pattern
• Silver Continues in 3-Year Falling Wedge Pattern
• Gold/Silver Stocks 4-Month Head-and-Shoulders Neckline Breached
• GDX Gold Miners ETF 4-Month Head-and-Shoulders Neckline Breached
• Crude Oil Forming 3.5-Month Ascending Triangle
• DBA Agriculture ETF Forming 2.5-Month Uptrend Channel
• Asset Class Performance Ranking with US Treasury Bond Leading

Broad Market in a Short-Term Bearish 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 41 on 5/16/2014 (down from 70 the previous week) which is very close to the panic threshold level of 42. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market would be in a short-term bearish time-window until 5/22/2014 (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 0.97% above the EMA89. Outperforming sectors are Wireless Communication (6.35%), Telecommunication (5.36%), and Real Estate (4.85%). Underperforming sectors are Internet (-6.15%), Banks (-3.27%), and Home Construction (-1.16%).

As shown in a daily chart below, the S&P 500 index has been in intermediate corrective wave (4) since the beginning of this year. This corrective wave expands into a complex correction combining possible multiple A-B-C corrective patterns, and the total length of this complex correction could be about five to six months. More information about Elliott Wave Complex Corrections can be found here.

Currently the S&P 500 index is in a 2.5-month broadening triangle (megaphone) pattern. The slope of the upper boundary of the triangle was adjusted to fit the recent price action and to avoid a partial rising. Last week wave B of the new A-B-C corrective pattern touched the upper boundary of the wedge and downward wave C just started.

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.

Intermediate corrective wave (4) is in a formation of a horizontal trading range between 9000 and 9750 combining possible multiple A-B-C corrective patterns. Prior 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. Last week wave B of the new A-B-C pattern touched the upper boundary of the trading range again. Downward wave C should start.

The following daily chart shows that the India Bombay Stock Exchange 30 Sensex Index is forming a 9-month rising wedge pattern. Last week the index broke above the upper boundary of the wedge and it had a fast advance. How high can it go? Based on the rising-wedge breakout, the upside price target is projected at 26000.

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. Now it is testing 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 Chinese market is underperforming.

The U.S. dollar is forming a 6-month trading range between 79.2 and 81.4. Recently it bounced off the lower boundary of the trading range again. The upper boundary of the trading range should be the next price target.

The following chart is a daily chart of the 30-year U.S. treasury bond. It formed a 3-month ascending broadening wedge pattern, and prices had a bullish breakout from the wedge two weeks ago. We had an upside price target at 136.5 based on the bullish breakout from the broadening wedge. Now this price target has been reached.

The gold index is forming a 8-week descending triangle pattern. Now it is very near an apex of the triangle. The next move of gold depends on the direction of a breakout from the triangle. It is neutral before a breakout from 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 triangle.

Gold/silver mining stocks formed a 4-month head-and-shoulders pattern. Currently the neckline has been breached. A downward breakout target is projected at the previous low around 80.

The GDX Market Vectors Gold Miners ETF has formed a 4-month head-and-shoulders pattern. Currently the neckline has been breached. A downward breakout target is projected at 21.

Crude oil is forming a 3.5-month ascending triangle pattern. Currently it is in an upward wave towards the upside boundary of the triangle. No price target is projected before a breakout.

The following chart shows that the PowerShares DBA Agriculture ETF is forming a 2.5-month uptrend channel. The ETF now is pulling back from the upper boundary of the channel. The lower boundary of the channel should be a support to test.

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently the US treasury bond is outperforming and gold is underperforming.