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09/14/2014 – Market Update

September 15, 2014 Leave a comment Go to comments

Watch Out Intermarket Technical Key Levels

Anxiety ahead of the Fed’s policy meeting this coming week generated a bearish sentiment on financial market indices except the U.S. dollar. Several major market indices approach critical boundaries of their chart patterns. The U.S. dollar is meeting the upper resistance level 84.5 of its 3-year long-term horizontal trading range. The U.S. 30-year treasury bond reaches the lower boundary of its 8-month uptrend channel. The gold index is waiting for a major breakout from a 16-month descending triangle pattern. The S&P 500 index has started the intermediate C wave towards the downside, and the 1910 level will be a key level to keep eyes on. 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 continues to form a potential head-and-shoulders top pattern having a neckline at the 9000 level.

Table of Contents

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 LWX Indicator in Last Four Weeks (Actual)
Last 4 wks LWX 9-12-2014

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 9-12-2014

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 24 on 9/12/2014 (up from 23 the previous week) which is below the panic threshold level of 41 and indicates a bullish market. The momentum has dropped into the negative territory. 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:

Short-Term Cycle: downward
Date of Next Cycle Low: 9/19/2014
Broad Market Instability Index (BIX): 24, below the panic threshold (bullish)
Momentum Indicator: negative (bearish)

W5000 9-12-2014

Sector Performance Ranking with Biotech Sector Leading

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 1.79% above the EMA89. Outperforming sectors are Biotech (6.97%), Semiconductors (5.11%), and Internet (4.69%). Underperforming sectors are Precious Metals (-5.75%), Energy (-2.82%), and Oil Equipment (-2.52%).

Sector 9-12-2014

S&P 500 Index in Primary Corrective Wave 4

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).

Now the S&P 500 index is in intermediate wave (C) towards the downside. The 1910 level will be a key level to keep eyes on.

SPX Elliott Wave 9-12-2014 (Daily)

German DAX Index: Elliott Wave

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 (C). The length of wave (C) 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.

DAX 9-12-2014 (Weekly)

India Bombay Stock Exchange Index in Bump Phase

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.

BSE 9-12-2014 (Weekly)

Shanghai Composite Index: Long-Term Picture

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. Early September 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 projected at 2460.

SSEC 9-12-2014 (Weekly)

Major Global Market Performance Ranking

The table below is the percentage change of major global stock market indexes against the 89-day exponential moving average (EMA89). Currently Chinese market is outperforming. The Russian market is underperforming.

Global Markets 9-12-2014

US Dollar Forming 3-Year Horizontal Trading Range

In the following weekly chart, the U.S. dollar is forming a 3-year horizontal trading range between 79.0 and 84.5. The recent advance pushed the U.S. dollar near the upper horizontal boundary. The 84.5 level will be a key resistance level to watch.

USD 9-12-2014

US Treasury Bond in 8-Month Bullish Uptrend Channel

The following chart is a daily chart of the 30-year U.S. treasury bond index. The index has formed an 8-month bullish uptrend channel. The sharp decline in September pulled the index towards the lower boundary of the channel. The lower boundary of the channel will be an important line for the trend of the treasury bond.

USB 9-12-2014

Gold Forming 16-Month Descending Triangle Pattern

The recent decline of the gold price has risen a question to our medium-term upside price target of 1400. Let’s look at a big picture. The following chart shows that the gold index is forming a 16-month Descending Triangle pattern. Gold has been moving sideways over a year inside this triangle. Before a breakout from the triangle, gold is currently neutral in the medium-term although it is bearish in the short-term. The next breakout from the descending triangle would generate a significant move.

Based on Bulkowski’s measure rule on descent triangle patterns, the upside price target is estimated at 1550 with an upward breakout, and the downside price target is estimated at 1055 with a downward breakout.

GOLD 9-12-2014

Silver in 9-Month Horizontal Trading Range

The silver index currently is forming a 9-month horizontal trading range between 19 and 22. Prices have been oscillating inside the trading range. It is neutral before the next breakout from the range. Currently is is testing the lower horizontal support line of the range.

Silver 9-12-2014

Gold/Silver Mining Stocks Forming 8-Month Ascending Triangle Pattern

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.

XAU 9-12-2014

GDX Gold Miners ETF Forming 8-Month Ascending Triangle Pattern

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.

GDX 9-12-2014

Crude Oil in 13-Week Bearish Downtrend Channel

Crude oil is forming a 13-week downtrend channel. It is bearish before prices break above the upper boundary of the channel.

Oil 9-12-2014

Asset Class Performance Ranking with the U.S. Dollar Leading

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. dollar is outperforming and crude oil is underperforming.

Asset 9-12-2014
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