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02/01/2015 – Market Update

February 2, 2015 Leave a comment Go to comments

 

Bad Omen for General Stock Market

 

Four bearish indications from 1) Santa Claus rally failure, 2) the first five days of the year indicator, 3) the January barometer, and 4) Super Bowl Indicator seem an omen of a bear market for stocks to come in 2015. The broad stock market is projected to be in a short-term neutral time-window until 2/5/2015.


Table of Contents



Broad Market in Short-Term Neutral 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 1-30-2015

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 1-30-2015

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 51 on 1/30/2015 (up from 22 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 neutral time-window until 2/5/2015 (see the second table above).

Now, we have four bearish indicators for 2015:
1. Santa Claus rally failed to show within the last five days of last year and first two in January.
2. First five days of this year had only 0.16% gain of the S&P 500 index which is a signal for a weak market in 2015.
3. The January barometer with 3.1% loss in January implies trouble ahead in 2015.
4. Super Bowl Indicator of a win for Patriots means a possible decline in the stock market for this year.

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: 2/12/2015
Broad Market Instability Index (BIX): 51, above the panic threshold (bearish)
Momentum Indicator: negative (bearish)

W5000 1-30-2015

 

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 0.84% below the EMA89. Outperforming sectors are Real Estate (5.55%), Biotech (4.77%), and Utilities (4.66%). Underperforming sectors are Oil Equipment (-10.62%), Energy (-7.82%), and Banks (-5.73%).

Sector 1-30-2015

 

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.

Based on the four bearish indicators mentioned in the first section, we have adjusted our Elliott wave counting for the S&P 500 index. In the intermediate level, it is still in corrective wave (2). The price target of 2225 previously projected is negated.

From early December to now, the SPX 500 index is in intermediate corrective wave (2) with minor wave abc sub-wave sequence. Now it is in minor wave c with a trading range.

SPX Elliott Wave 1-30-2015 A

 

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. Recently prices broke above the upper boundary of the wedge. This breakout is a very bull sign for intermediate wave (3).

DAX 1-30-2015 (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.

BSE 1-30-2015 (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 1-30-2015 (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 1-30-2015

 

US Dollar Overshooting Upside Price Target


In the following weekly chart, the U.S. dollar advanced above the upper boundary of the 3-year ascending broadening triangle pattern. The price target of 92.4 has reached. A consolidation is expected next.

USD 1-30-2015 (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 1-30-2015

 

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 once prices break above the upper boundary of the wedge. Recently 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 1-30-2015

 

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 once prices break above the upper boundary of the wedge. Recently 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 1-30-2015

 

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 1-30-2015

 

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 fifth parallel line will become a buy line, according to Bulkowski on Bump-and-Run Reversal Bottoms. Now prices are testing the fifth parallel line.

Oil 1-30-2015

 

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 1-30-2015
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