09/01/2014 – Market Update
The Stock Market Now in September
As the U.S. 30-year treasury bond makes another 52-week high and the U.S. dollar challenges its 52-week high, the strong August rebound of the S&P 500 index driven by the intermediate upward B wave nears its end. The intermediate C wave will start towards the downside as soon as the B wave ends. Although a flat correction pattern is most likely, the August low around 1910 will be a key level to test the strength of the S&P 500 index. The German DAX has more downside risk with its potential zigzag correction pattern. The India Bombay Stock Exchange index is still in a bullish uptrend along its accelerated slope driven by excessive speculation. The recent powerful rebound of the Shanghai Composite index is blocked by a strong resistance at the 2250 level, and it is gathering energy for the next breakout from the resistance. The broad stock market is projected to be in a short-term neutral time-window until 9/4/2014 and would be in a short-term bearish time-window until 9/19/2014 which will be coincident with September Triple Witching day.
Table of Contents
- Broad Market in a Short-Term Neutral Time-Window
- Sector Performance Ranking with Biotech Sector Leading
- S&P 500 Index in Primary Corrective Wave 4
- German DAX Index: Elliott Wave
- India Bombay Stock Exchange Index in Bump Phase
- Shanghai Composite Index: Long-Term Picture
- Major Global Markets Performance Ranking
- US Dollar Bullish Breakout from 9-Month Trading Range
- US Treasury Bond in 8-Month Uptrend Channel
- Gold Forming 8-Month Symmetrical Triangle Pattern
- Silver in 9-Month Horizontal Trading Range
- Gold/Silver Stocks Forming 8-Month Ascending Triangle Pattern
- GDX Gold Miners ETF Forming 8-Month Ascending Triangle Pattern
- Crude Oil in 11-week Bearish Downtrend Channel
- Asset Class Performance Ranking with the U.S. Treasury Bond Leading
Broad Stock Market in 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 5 on 8/29/2014 (up from 3 the previous week) which is below the panic threshold level of 41 and indicates a bullish market. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market would stay in a short-term neutral time-window until 9/4/2014 and would be in a short-term bearish time-window until 9/19/2014 (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 3.29% above the EMA89. Outperforming sectors are Biotech (11.19%), Semiconductors (7.63%), and Technology (5.49%). Underperforming sectors are Wireless Communication (-3.24%), Home Construction (-0.74%), and Telecommunication (1.10%).
Since the downward breakout from the 4-month rising wedge (Ending Diagonal) in late July, the S&P 500 index has been in primary wave [4] which is typically a major corrective (but not crash) wave. The downside price target for primary wave [4] is projected at 1820.
This primary wave [4] is expected to have an intermediate (A)–(B)–(C) corrective wave structure. The decline in late July and early August is intermediate wave (A) which is the first downward leg of primary corrective wave [4]. Then the S&P 500 index had a strong rebound wave (B). Since wave (B) has gone beyond the starting level of wave (A), the primary wave [4] or the intermediate (A)–(B)–(C) corrective wave structure has become a flat correction.
Please note that this flat correction still has two possible scenarios depending on how wave (C) will go next. The first scenario is an Expanded Flat that it can have wave (C) go much lower than wave (A). The second scenario is a Running Flat when wave (C) ends early above the beginning of wave (B).
As the short-term time-window is turning from bullish to neutral, wave (B) is near its end, and downward wave (C) will start soon.
The German DAX index has a similar Elliott Wave structure to the S&P 500 index. But it has been much weaker than the S&P 500 index since it broke below the lower boundary of the rising wedge (Ending Diagonal). Now it is in primary wave [4], and intermediate wave (B). Wave (C) towards the downside is coming, and its length would be same as wave (A). The corrective wave [4] is most likely in a Zigzag correction rather than a flat correction. From our “Major Global Markets Performance Ranking” section, you can find that the Germany stock market last week is ranked as a worst performer again just next to the Russian stock market.
In the weekly chart of the India Bombay Stock Exchange 30 Sensex index, there is a possible development of a Bump and Run Reversal Top pattern. According to Thomas Bulkowski, the Bump-and-Run Reversal Top pattern consists of three main phases:
1) A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees. Prices move in an orderly manner and the range of price oscillation defines the lead-in height between the lead-in trend line and the first parallel line.
2) A bump phase where, after prices cross above the first parallel line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height. Once the second parallel line gets crossed over, it serves as a sell line.
3) A run phase in which prices break support from the lead-in trend line in a downhill run.
Since March of this year, the Bombay index has been in the Bump phase with a sharp trendline as excessive speculation drives prices up steeply. Recently it has fought with the second parallel line. It is bullish as long as prices keep up above the second parallel line.
After crashed from its all time high in 2007, the Shanghai Stock Exchange Composite Index has been in a long time sliding through a primary corrective [A]-[B]-[C] wave structure for years. Its primary wave [C] is in a formation of a 5-year falling wedge which is also characterized as a “Ending Diagonal”. Once this ending diagonal ends, the bear market with primary corrective [A]-[B]-[C] waves could end too.
In July, prices finally broke above the upper boundary of the falling wedge. This breakout is a long-term bullish reversal signal for the Chinese stock market, and triggered an explosive advance. The upside price target for the medium-term is projected at 2400.
Now it is forming an 1-year horizontal trading range between 2000 and 2250. In the short-term, prices may oscillate inside the trading range before the next breakout from the upper boundary at 2250 which is a strong resistance.
The table below is the percentage change of major global stock market indexes against the 89-day exponential moving average (EMA89). Currently Brazilian market is outperforming. The Russian market is underperforming.
The U.S. dollar formed a 9-month trading range between 79.2 and 81.5. Since it broke above the upper horizontal boundary of the trading range, it has been in a sharp advance. This breakout makes the U.S. dollar become bullish. The upside price target is projected at 83.5.
The following chart is a daily chart of the 30-year U.S. treasury bond index. The index is forming an 8-month bullish uptrend channel. Currently it is near the upper boundary of the channel, and it may have a pullback soon.
The gold index is forming an 8-month symmetrical triangle pattern. It is neutral before a breakout from the triangle. Currently is is near the lower boundary of the triangle. We maintain our upside price target 1400 for the medium-term.
The silver index currently is forming a 9-month horizontal trading range between 19 and 22. In the short-term, prices may oscillate inside the trading range before the next breakout from the trading range.
Gold/silver mining stocks are forming an 8-month ascending triangle pattern. Once prices break above the upper horizontal boundary, the upside price target could be projected at 125.
The GDX Market Vectors Gold Miners ETF is also forming an 8-month ascending triangle pattern. Once prices break above the upper horizontal boundary, the upside price target could be projected at 33.5.
Crude oil is forming a 11-week downtrend channel. It is bearish before prices break above the upper boundary of the channel. Last week it bounced off the lower 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 the U.S. treasury bond is outperforming and crude oil is underperforming.
