Intermediate Fifth Wave Emerges in S&P 500 and DAX

The environment this year is gradually shifting to inflationary after it has stayed in deflationary for several years. The positive relationship between stocks and bonds is coming back as the environment becomes inflationary again. It should be no surprise that stocks and bonds recently moved up at the same time. After several months in an intermediate flat corrective wave, the S&P 500 index and German DAX get into the intermediate fifth wave which is an upward impulse wave also the final leg of long-term primary wave 3. The broad stock market is projected to be in a short-term bullish time-window until 6/6/2014.

Table of Contents

• Broad Market in a Short-Term Bullish Time-Window
• Sector Performance Ranking with Wireless Communication Sector Leading
• S&P 500 Index in Intermediate Impulse Wave 5
• German DAX Index: Elliott Wave
• India Bombay Stock Exchange Index Forming Bullish Uptrend Channel
• Shanghai Composite Index: Long-Term Picture
• Major Global Markets Performance Ranking
• US Dollar Forming 8-Month Trading Range
• US Treasury Bond in 3-Month Bullish Uptrend Channel
• Gold Bearish Breakdown 2-Month Descending Triangle Pattern
• Silver Continues in 3-Year Falling Wedge Pattern
• Gold/Silver Stocks Falling from 4-Month Head-and-Shoulders Pattern
• GDX Gold Miners ETF Falling from 4-Month Head-and-Shoulders Pattern
• Crude Oil Forming 4-Month Ascending Triangle
• Asset Class Performance Ranking with US Treasury Bond Leading

Broad Market in a Short-Term Bullish 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 12 on 5/30/2014 (up from 9 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market would be in a short-term bullish time-window until 6/6/2014 (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 3% above the EMA89. Outperforming sectors are Wireless Communication (8.19%), Oil Equipment (5.92%), and Semiconductors (5.67%). Underperforming sectors are Precious Metals (-4.23%), Internet (-0.90%), and Banks (0.23%).

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 expanded into a complex correction combining two sets of A-B-C corrective patterns. The total length of this complex correction has already taken about five months.

The A’-B’-C’ corrective pattern after wave X is a running flat that indicates a strong market. Also the S&P 500 index is forming a 3-month inverted roof pattern. Last week prices broke above the upper resistance line of the inverted roof. This breakout is a sign for ending corrective wave (4) and starting intermediate upward impulse wave (5).

There is another possible wave counting for this year’s moves of the S&P 500 index. From January to April, corrective wave (4) was in a formation of a A-B-C correction. Since wave B ends beyond the beginning of wave A, and wave C falls short of stopping near the end of wave A, this A-B-C correction can be characterized as a Running Flat which indicates a strong market. Intermediate upward impulse wave (5) started right after wave C. Now it is in minor wave 1 of wave (5).

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 (5), and minor wave 1.

Intermediate corrective wave (4) has been in a formation of a horizontal trading range between 9000 and 9750 with an A-B-C corrective pattern. The advance during last several weeks started intermediate upward impulse wave (5). Now it is in minor wave 1 of wave (5).

The India Bombay Stock Exchange 30 Sensex index recently broke above the upper boundary of a 9-month rising wedge and it had a fast advance. Now it is forming a 10-month bullish uptrend channel pattern with recent prices touched the upper boundary of the channel.

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 8-month trading range between 79.2 and 81.4. Recently it bounced off the lower boundary of the trading range. The upper boundary of the trading range should be the next price target.

The following chart is a daily chart of the 20-year U.S. treasury bond TLT ETF. It is in a 3-month bullish uptrend channel.

The gold index had a bearish downward breakout from a 2-month descending triangle pattern. A downside price target is projected at 1247 based on the downward breakout of the descending triangle. Now the price is close to the target.

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 has broken below the neckline of 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 has broken below the neckline of a 4-month head-and-shoulders pattern. A downward breakout target is projected at the previous low at 20.5.

Crude oil is forming a 4-month ascending triangle pattern. Currently it is in a downward wave towards the lower boundary of the triangle. No price target is projected before a breakout.

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.