Home > News > 01/04/2015 – Market Update

01/04/2015 – Market Update

 

Be Prepared for Higher Volatility in 2015

 

The 30-year U.S. treasury bond and the U.S. dollar have been strong and extended gains. It is a bearish sign that the stock market so far has not seen a Santa Claus rally supposed to be within the last five days of December and first two in January. Then the first five days of January become important to further check the strength of the stock market. With volatility expected to rise, the stock market this year will be more erratic than last year. The broad stock market is projected to be in a short-term bullish time-window until 1/6/2015.


Table of Contents



Broad Market is Going to Turn in Short-Term Bearish 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 1-2-2015

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 1-2-2015

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 3 on 1/2/2015 (up from 2 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. The momentum is in the positive territory. Based on the forecast of LWX, the broad stock market will be in a short-term bullish time-window until 1/6/2015 (see the second table above). According to Stock Trader’s Almanac, there is a trend of Santa Claus rally nearly every year within the last five days of the year and first two in January. However, if Santa Claus rally fails to show, it tends to precede bear markets. 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: peak
Date of Next Cycle High: 1/6/2015
Broad Market Instability Index (BIX): 3, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

W5000 1-2-2015

 

Sector Performance Ranking with Utilities 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 2.22% above the EMA89. Outperforming sectors are Utilities (5.75%), Semiconductors (5.69%), and Consumer Services (5.34%). Underperforming sectors are Precious Metals (-10.89%), Oil Equipment (-9.83%), and Energy (-6.45%).

Sector 1-2-2015

 

S&P 500 Index in Primary Impulse Wave 5


Currently the S&P 500 index is in primary impulse wave [5]. 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 began from mid October of 2014 and will end sometime in 2015.

In the intermediate level, it is now in upward wave (3). Wave (3) will likely be longer in price range than wave (1). Based on 0.618 extension of wave (1), the target of wave (3) is projected at 2225.

Intermediate wave (3) should have a minor 12345 sub-wave sequence, and may need about three months to develop. Now minor wave 1 has ended, and wave 2 just started. Wave 2 is a retracement of wave 1.

According to Elliott Wave Rules, wave 2 should not go below the beginning of wave 1. Otherwise, our wave count for intermediate wave (2) and wave (3) would be revised.

SPX Elliott Wave 1-2-2015

 

German DAX Index: Elliott Wave


In the following weekly chart, the German DAX index has been in primary impulse wave [5] since mid October. Primary wave [5] contains an intermediate (1)(2)(3)(4)(5) five-wave sequence. It has completed downward wave (2) and has begun upward wave (3).

The index also developed an 1-year broadening wedge pattern. Since wave (2) did not reach the lower boundary of the wedge, it formed a partial decline which has a bullish indication for a potential upward breakout of the wedge.

DAX 1-2-2015 (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 2014, 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. Recently prices broke below the Bump Trendline. This could be an early sign for a trend change, and it needs to be confirmed if prices further break below the 2nd Parallel Line.

BSE 1-2-2015 (Weekly)

 

Shanghai Composite Index: Long-Term Picture


Last year the Chinese stock market phased out its years-long bear market after it completed a 5-year “Ending Diagonal” pattern. A new bull market 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. Recently the Chinese stock market had an explosive advance and the Shanghai Stock Exchange Composite Index reached our third upside price target 3150 based on an upward breakout of the 5-year falling wedge pattern according to Bulkowski’s measure rule.

Primary wave [1] contains an intermediate (1)(2)(3)(4)(5) five-wave sequence. Now the Shanghai index is most likely ending intermediate wave (3). The next wave (4) will be a downward wave to correct wave (3).

SSEC 1-2-2015 (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 1-2-2015

 

US Dollar Bullish above 3-Year Ascending Broadening Triangle


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.

USD 1-2-2015 (Weekly)

 

US Treasury Bond in Bump Phase


The following chart is a daily chart of the 30-year U.S. treasury bond index in a possible development of a Bump and Run Reversal Top pattern. The index has formed an 11-month bullish uptrend channel. Also it has advanced sharply along a steep trendline since mid September of last year as excessive speculation drives prices up. Recently prices broke above the second parallel line. The uptrend continues as long as prices stay above the second parallel line.

USB 1-2-2015

 

Gold in 6-Month Descending Broadening Wedge Pattern


The following chart shows that the gold index formed a 6-month descending broadening wedge pattern. 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 1-2-2015

 

Silver in 6-Month Descending Broadening Wedge Pattern


The silver index has also formed a 6-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.

Silver 1-2-2015

 

Gold/Silver Mining Stocks in 4-Month Descending Broadening Wedge


Gold/silver mining stocks formed a 4-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. Now prices are testing the upper boundary of the wedge.

XAU 1-2-2015

 

GDX Gold Miners ETF in 4-Month Descending Broadening Wedge


The GDX Market Vectors Gold Miners ETF formed a 4-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. Now prices are testing the upper boundary of the wedge.

GDX 1-2-2015

 

Crude Oil in 6-Month Bump and Run Reversal Bottom Pattern


Crude oil is forming a 6-month Bump and Run Reversal Bottom pattern. Since late October its decline has accelerated, and reached a bump low with four times the lead-in height. Now the forth parallel line becomes an important line. It will be bearish as long as prices stay below that line. Otherwise, the forth parallel line will become a buy line, according to Bulkowski on Bump-and-Run Reversal Bottoms.

Oil 1-2-2015

 

Asset Class Performance Ranking with U.S. Treasury Leading


The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently U.S. treasury bond is outperforming and crude oil is underperforming.

Asset 1-2-2015
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