Bullish Stock Market but Not All Sectors

The stock market, U.S. dollar, and 30-year U.S. treasury bond all are bullish, and their prices hover near their 52-week highs. However our weekly updated sector performances show a strong divergence of stock sectors, as semiconductors, home construction, and biotech sectors are near 52-weeks highs while precious metals, oil equipment, and energy sectors are close to 52-weeks lows. Especially the momentum of the general stock market is still weakening but the volatility has a sign to jump up. In overseas markets, last week the Shanghai Stock Exchange Composite index had a powerful bullish breakout from a 3-year rectangle bottom pattern, and confirmed the change of its long-term trend from a bear market to a bull market.

Table of Contents

• Broad Market Instability Index Crossed Over Panic Threshold Level
• Sector Performance Ranking with Semiconductors Sector Leading
• S&P 500 Index in Primary Impulse Wave 5
• 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 above 3-Year Ascending Broadening Triangle
• US Treasury Bond Bullish Breakout from 11-Month Uptrend Channel
• Gold in 5-Month Descending Broadening Wedge Pattern
• Silver in 5-Month Descending Broadening Wedge Pattern
• Gold/Silver Stocks in 3.5-Month Descending Broadening Wedge
• GDX Gold Miners ETF in 3.5-Month Descending Broadening Wedge
• Crude Oil Forming 5-Month Bump and Run Reversal Bottom
• Asset Class Performance Ranking with Equity Leading

Broad Market Instability Index Crossed Over Panic Threshold Level

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 Leading-Wave Index (LWX) has been bullish since October 17. Based on the forecast of LWX, the broad stock market should be in a short-term neutral time-window until 12/9/2014 (see the second table above). The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 68 on 11/28/2014 (down from 8 the previous week) which is above the panic threshold level of 42 and indicates a bearish market. 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 3.82% above the EMA89. Outperforming sectors are Semiconductor (10.32%), Home Construction (9.79%), and Biotech (9.16%). Underperforming sectors are Precious Metals (-15.68%), Oil Equipment (-13.71%), and Energy (-11.46%).

From late July to mid October, the S&P 500 index went through primary corrective wave [4] in a pattern of a Expanded Flat Correction with intermediate (A)–(B)–(C) waves. Upward wave (B) extended beyond the beginning of wave (A), and downward wave (C) extended beyond the end of wave (A). Primary corrective wave [4] ended as the expanded flat correction finished.

Now the S&P 500 index is in primary impulse wave [5] with intermediate upward wave (1). Ideally primary wave [5] contains an intermediate (1)–(2)–(3)–(4)–(5) sub-wave structure. This fifth primary wave will be the final upward leg of the entail bull market started from 2009, and this final leg can last several months which begins from mid October of this year and ends sometime in 2015.

This scenario can stand only if next downward wave (2) does not retrace all way back below 1820.

As illustrated in the chart below, currently we approach the end of intermediate wave (1) inside primary wave [5]. After intermediate wave (1) completes, we will get a projected price target for primary wave [5] based on the final height of wave (1).

In the following weekly chart, the German DAX index has completed primary corrective wave [4] as intermediate downward wave (C) ended. Now it is in primary impulse wave [5] with intermediate upward wave (1).

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. The index maintained above the 2nd Parallel Line. The uptrend continues as long as prices stay above the Bump Trendline.

This year the Chinese stock market gradually phased out its years-long bear market after it completed a 5-year “Ending Diagonal” pattern. A new bull market just started, and the Shanghai Stock Exchange Composite Index is in primary wave [1] which is the first upward leg of a potential multi-year bull market.

As we talked last week, it formed a 3-year rectangle bottom between 2000 and 2460. Now prices sharply broke above the upper horizontal boundary of the rectangle. Based on Bulkowski’s measure rule on an upward breakout of rectangle bottoms, the next upside price target is projected at 2850.

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.

In the following weekly chart, the U.S. dollar broke above the upper boundary of the 3-year ascending broadening triangle pattern. Based on Bulkowski’s measure rule on an upward breakout of ascending broadening triangles, the upside price target is projected at 92.4.

The following chart is a daily chart of the 30-year U.S. treasury bond index. The index has formed an 11-month bullish uptrend channel. Also it has advanced sharply along a steep trendline since mid September. Last week prices broke above the upper boundary of the channel. This bullish breakout could trigger a further advance on the treasury price as excessive speculation kicks in.

The following chart shows that the gold index formed a 5-month descending broadening wedge pattern. Prices are still confined between two divergent boundaries. This pattern is potentially a bullish reversal pattern although the trend is bearish. The bullish bias can be realized only when prices break above the upper boundary of the wedge.

The silver index has also formed a 5-month descending broadening wedge pattern. Prices are still confined between two divergent boundaries. This pattern is potentially a bullish reversal pattern although the trend is bearish. The bullish bias can be realized only when prices break above the upper boundary of the wedge.

Gold/silver mining stocks are still in a 3.5-month descending broadening wedge pattern. Prices are confined between two divergent boundaries. This pattern is potentially a bullish reversal pattern although the trend is bearish. The bullish bias can be realized only when prices break above the upper boundary of the wedge.

The GDX Market Vectors Gold Miners ETF are still in a 3.5-month descending broadening wedge pattern. Prices are confined between two divergent boundaries. This pattern is potentially a bullish reversal pattern although the trend is bearish. The bullish bias can be realized only when prices break above the upper boundary of the wedge.

Crude oil is forming a 5-month Bump and Run Reversal Bottom pattern. Since late October its decline has accelerated along the Bump Trendline, and reached a bump low with twice the lead-in height. Last week prices further declined sharply, and moved beyond three times the lead-in height. Now the third parallel line becomes an important line. It will be bearish as long as prices stay below that line. Otherwise, the third parallel line will become a buy line, according to Bulkowski on Bump-and-Run Reversal Bottoms.

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.