09/07/2014 – Market Update
S&P 500 Index at a Turning Point
The U.S. dollar made a 52-week high and reached our upside price target 83.5. The U.S. 30-year treasury bond retreated after it touched the upper boundary of its 8-month uptrend channel. The S&P 500 index is at a turning point to end the intermediate upward B wave and to start the intermediate C wave towards the downside. The broad stock market is projected to be in a short-term bearish time-window until 9/19/2014 which will be coincident with September Triple Witching day. The German DAX looks like forming a head-and-shoulders top pattern with a neckline at the 9000 level. The Shanghai Composite index had a bullish breakout from an one-year horizontal trading range, and further signaled a long-term bullish reversal of the Chinese stock market from its multi-year low.
Table of Contents
- Broad Market to be in Short-Term Bearish 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 Reached Upside Price Target 83.5
- US Treasury Bond in 8-Month Uptrend Channel
- Gold Forming 5-Month Trading Channel
- 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 12-week Bearish Downtrend Channel
- Asset Class Performance Ranking with Equity Leading
Broad Stock Market to be 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 23 on 9/5/2014 (up from 5 the previous week) which is below the panic threshold level of 41 and indicates a bullish market. The BIX moved up and the momentum dropped to zero while the broad stock market went flat last week. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market would stay 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 3.18% above the EMA89. Outperforming sectors are Biotech (8.50%), Semiconductors (7.71%), and Internet (5.15%). Underperforming sectors are Precious Metals (-2.85%), Home Construction (-1.71%), and Wireless Communication (-0.53%).
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.
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). So the 1910 level will be a key level to keep eyes on.
As the short-term time-window is going to turn from neutral to bearish, downward wave (C) is due to come.
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 July. Now it is in primary wave [4], and intermediate wave (B). Wave (C) towards the downside is due to come, 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.
In the one-year time horizon, the DAX also is forming a potential Head-and Shoulders pattern which the left shoulder and head have completed above a neckline at the 9000 level. Now it could be forming the right shoulder.
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. After it consolidated around the second parallel line for several months in early summer, it has advanced again. It is bullish as long as prices keep up above the Bump Trendline.
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 should end too.
In July, prices finally broke above the upper boundary of the falling wedge and triggered an explosive advance. This breakout is a bullish reversal signal in the long-term for the Chinese stock market, that means ending primary wave [C] and starting primary wave [1].
It also formed an 1-year horizontal trading range between 2000 and 2250. Last week prices broke above the upper horizontal resistance level of 2250 with a sharp advance. Based on this bullish breakout, the upside price target for the medium-term is upgraded to 2460 from our previous 2400.
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 and has made a 52-week high. The upside price target was projected at 83.5, and was reached last week. A consolidation is expected for next.
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. Last week it pulled back after it was close to the upper boundary of the channel.
The gold index is forming a 5-month tilted trading channel. It has been moving sideways this year so far. Currently it is testing the lower boundary of the channel, and a bounce from the lower boundary is likely. 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 12-week downtrend channel. It is bearish before prices break above the upper boundary of the channel. Currently it holds above the 93 level.
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently equity is outperforming and crude oil is underperforming.
