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11/02/2014 – Market Update

November 2, 2014 Leave a comment Go to comments

SPX Hit a New Record Ahead of Midterm Elections

The broad stock market continued its sharp rebound after a recent correction. The S&P 500 index (SPX) fast hit a new record high. The bullish tone should extend to the next week, and the broad stock market is projected to stay in a short-term bullish time-window until 11/4/2014 which coincides with the U.S. general election day. Although the stock market may extend the rally further, a pullback could occur after the election, with a downward wave counted as either the intermediate C wave in the complex-correction scenario or the intermediate second wave in the expanded-flat-correction scenario. Following the falling Japanese yen in a surprise stimulus move from the Bank of Japan, gold, silver and their mining stocks all are bearish below their descending triangle patterns.


Table of Contents


Broad Stock Market in a Short-Term Bullish Time-Window

The Leading-Wave Index (LWX) 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 10-31-2014

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 10-31-2014

The Leading-Wave Index (LWX) has been bullish since October 17. Based on the forecast of LWX, the broad stock market would be in the short-term bullish time-window until 11/4/2014 (see the second table above) which is coincident with the U.S. general election day. The stock market seems bullish in the five days before and three days after the election day.

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 14 on 10/31/2014 (up from 8 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. During the last three years, there are five major spikes on the BIX respectively in May 2012, November 2012, June 2013, February 2014, and October 2014. All of them correspond to a 5-10% correction on the S&P 500 index. Spikes of the BIX typically surged in the late part of each correction when pessimistic sentiments kicked in. As a contrarian indicator, they usually correspond to local lows of the broad market.

BIX 10-31-2014

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: upward
Date of Next Cycle High: 11/04/2014
Broad Market Instability Index (BIX): 14, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

W5000 10-31-2014


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 3.12% above the EMA89. Outperforming sectors are Biotech (13.03%), Healthcare (7.53%), and Utilities (6.35%). Underperforming sectors are Precious Metals (-21.56%), Oil Equipment (-5.95%), and Energy (-4.17%).

Sector 10-31-2014



S&P 500 Index: Transition from the 4th to 5th Primary Wave

The S&P 500 index has been in primary corrective wave [4] for three months since the downward breakout from the 4-month rising wedge (Ending Diagonal) in late July. After it reached near 1820 which is the level of the previous intermediate wave (4), the S&P 500 index had a big rebound, and closed at a new record high last Friday. Primary wave [4] should either near its end or have finished depending the following two scenarios.

Scenario 1 – Complex Correction

Primary wave [4] has a pattern of a Complex Correction combining two sets of intermediate (A)(B)(C) corrective wave sequences linked by wave (X). Now the S&P 500 index is in upward wave (B) of the second set of intermediate (A)-(B)-(C) waves. There is still downward wave (C) ahead, and it will most likely occur after the midterm election. The complex correction should continue until wave (C) ends.

SPX Elliott Wave 10-31-2014 Scenario 1

 

Scenario 2 – Expanded Flat Correction

Primary wave [4] has a pattern of a Expanded Flat Correction with a single set of intermediate (A)(B)(C) corrective waves. Upward wave (B) went up beyond the beginning of wave (A), and downward wave (C) finished beyond the end of wave (A). This expanded flat correction should have finished as primary corrective wave [4] ended. Now primary impulse wave [5] should have started with intermediate upward wave (1). This scenario can stand only if next downward wave (2) does not retrace all way back below 1820.

SPX Elliott Wave 10-31-2014 Scenario 2



German DAX Index: Elliott Wave

In the following weekly chart, the German DAX index is completing primary corrective wave [4] as intermediate downward wave (C) ends. Its next move should be primary impulse wave [5] with intermediate upward wave (1).

The Head-and-Shoulders pattern we tracked for weeks has finished. Now this pattern could become a precursor of a potential “Three Peaks and a Domed House” pattern. Right now it just had a separating decline after the three peaks.

DAX 10-31-2014 (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. As it recently adjusted the slope of its Bump Trendline, the index maintained above the 2nd Parallel Line. The uptrend continues as long as prices stay above the Bump Trendline.

BSE 10-31-2014 (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 that bullish breakout, the upside price target for the medium-term is projected at 2460. Now it is sharply approaching the price target.

SSEC 10-31-2014 (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 10-31-2014



US Dollar Still in 3-Year Ascending Broadening Triangle

In the following weekly chart, the U.S. dollar is still in a 3-year ascending broadening triangle pattern. It is neutral before next breakout.

USD 10-31-2014 (Weekly)



US Treasury Bond in 10-Month Bullish Uptrend Channel

The following chart is a daily chart of the 30-year U.S. treasury bond index. The index has formed a 10-month bullish uptrend channel. Now it bounced off the upper boundary of the channel. It would be bullish as long as prices stay above the lower boundary of the channel.

USB 10-31-2014



Gold Bearish Breakout from 18-Month Descending Triangle

The following chart shows that the gold index formed an 18-month Descending Triangle pattern. Last week the gold price broke below the horizontal boundary of the triangle. Based on Bulkowski’s measure rule on descent triangle patterns, the downside price target is projected at 1050 with a downward breakout.

GOLD 10-31-2014



Silver Bearish Below 14-Month Descending Triangle

The silver index has been below a 14-month descending triangle pattern. Based on Bulkowski’s measure rule on descent triangle patterns, the downside price target is projected at 15.

Silver 10-31-2014



Gold/Silver Mining Stocks Bearish Below 16-month Descending Triangle

Gold/silver mining stocks have been below the horizontal boundary of a 16-month descending triangle pattern. Based on Bulkowski’s measure rule for descending triangle breakout, the downside target is projected at 61.

XAU 10-31-2014



GDX Gold Miners ETF Bearish Below 16-Month Descending Triangle

The GDX Market Vectors Gold Miners ETF broke below the horizontal boundary of a 16-month descending triangle pattern. Based on Bulkowski’s measure rule for descending triangle breakout, the downside target is projected at 14.8.

GDX 10-31-2014



Crude Oil Forming 4-Month Bump and Run Reversal Bottom

Crude oil is forming a 4-month Bump and Run Reversal Bottom pattern. In October, its decline accelerated along the Bump Trendline, and prices reached a bump low with twice the lead-in height. Now prices bounced off the second parallel line, and crossed above the bump trendline. It should be in a bottom process.

Oil 10-31-2014



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 10-31-2014
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