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01/18/2015 – Market Update

January 20, 2015 Leave a comment Go to comments

 

Gold and Precious Metal Stocks Strengthening

 

Gold and precious metal stocks had bullish breakouts and are in bullish patterns, gold above 6-month descending broadening wedge and precious metal stocks above 2-month rectangle bottom. The stock market is near the end of the pullback but still volatile. The broad stock market is projected to be in a short-term bullish time-window until 2/6/2015.


Table of Contents



Broad Market about to Turn in 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 1-16-2015

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 1-16-2015

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 71 on 1/16/2015 (up from 23 the previous week) which is above the panic threshold level of 42 and indicates a bearish market. Based on the forecast of LWX, the broad stock market will be in a short-term bullish time-window until 2/6/2015 (see the second table above).

Santa Claus rally failed to show within the last five days of last year and first two in this January. It is the first sign for the new year to precede a bear market. Based on the 0.16% gain of the S&P 500 index was resulted from January’s first five days of this year, it seems to be sending the signal for a weak market in 2015.

By the end of this month, we will check another important indicator, the January barometer, which uses the S&P 500 index results from the entire month of January.

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: valley
Date of Next Cycle High: 2/6/2015
Broad Market Instability Index (BIX): 71, above the panic threshold (bearish)
Momentum Indicator: near zero (neutral)

W5000 1-16-2015

 

Sector Performance Ranking with Real Estate 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 0.16% above the EMA89. Outperforming sectors are Real Estate (7.97%), Utilities (6.99%), and Biotech (5.59%). Underperforming sectors are Oil Equipment (-12.68%), Energy (-9.16%), and Banks (-5.75%).

Sector 1-16-2015

 

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. After minor wave 1 ended, minor wave 2 has developed. Wave 2 is a retracement of wave 1. It looks like that minor corrective wave 2 has an (a)-(b)-(c) sub-wave sequence. Now wave (c) is near the end.

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. So let’s watch for the 1973 level.

SPX Elliott Wave 1-16-2015

 

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 1-16-2015 (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 1-16-2015 (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 and past 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 1-16-2015 (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 1-16-2015

 

US Dollar Reached Upside Price Target 92.4


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. This price target was reached during last week. A consolidation is expected next, and it could give a time window for gold to rebound.

USD 1-16-2015 (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 advanced sharply along a steep trendline since mid September of last year as excessive speculation drives prices up. Now prices broke above the third parallel line. The uptrend continues as long as prices stay above the third parallel line and the Bump Trendline.

USB 1-16-2015

 

Gold Bullish Breakout from Descending Broadening Wedge


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. One week ago prices broke above the upper boundary which is a bullish signal for gold. According to Bulkowski’s measure rule on an upward breakout of descending broadening wedges, the upside price target is projected at 1368.

GOLD 1-16-2015

 

Silver Bullish Breakout from Descending Broadening Wedge


The silver index has also 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. Last week ago prices broke above the upper boundary which is a bullish signal for silver. According to Bulkowski’s measure rule on an upward breakout of descending broadening wedges, the upside price target is projected at 21.

Silver 1-16-2015

 

GDX Gold Miners ETF Bullish Breakout from Rectangle Bottom Pattern


After a bullish breakout from a 4-month descending broadening wedge pattern, the GDX Market Vectors Gold Miners formed a 2-month rectangle bottom or a double- bottom pattern. Recently it broke above the upper boundary of the rectangle bottom pattern which is a bullish sign for GDX. According to Bulkowski’s measure rule on an upward breakout of rectangle bottom patterns, the upside price target is projected at 23.5.

GDX 1-16-2015

 

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 five times the lead-in height. Now the fifth 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. Now prices are testing both lines.

Oil 1-16-2015

 

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 1-16-2015
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