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02/08/2015 – Market Update

February 9, 2015 Leave a comment Go to comments

 

Reversals: Bullish Oil and Bearish Bond

 

Last week crude oil had a bullish reversal from it 6-month Bump and Run Reversal Bottom while the 30-year U.S. treasury bond had a bearish reversal from an 1-year Bump and Run Reversal Top. The German DAX index is in an advance of the intermediate third wave, and the S&P 500 index is still in a flat correction with the intermediate second wave. The broad stock market is projected to be in a short-term neutral time-window until 2/12/2015.


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 2-6-2015

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 2-6-2015

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 6 on 2/6/2015 (down from 51 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. Based on the forecast of LWX, the broad stock market will be in a short-term neutral time-window until 2/12/2015 (see the second table above).

Last week we discussed four bearish indicators pointing to an omen of a bear stock market to come in 2015. We will keep that negative factor in our mind throughout this year. On the other side, this year also is a pre-presidential election year. It is typically bullish without losers in 76 years. Therefore, we have mixed signs from both bullish and bearish indications for this year. Colliding of those two opposite forces could make the stock market of this year very choppy and volatile.

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): 6, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

W5000 2-6-2015

 

Sector Performance Ranking with Home Construction 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 1.79% above the EMA89. Outperforming sectors are Home Construction (9.00%), Consumer Services (5.35%), and Wireless Communication (4.97%). Underperforming sectors are Oil Equipment (-5.48%), Energy (-2.29%), and Precious Metals (-1.66%).

Sector 2-6-2015

 

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.

From early December to now, the SPX 500 index is in intermediate corrective wave (2) with minor wave abc sub-wave sequence. Wave (2) is in a flat correction formation. Now the S&P 500 index is in minor wave c which is a trading range for last five weeks.

SPX Elliott Wave 2-6-2015

 

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

DAX 2-6-2015 (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 2-6-2015 (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 in intermediate wave (4) for a correction with a potential 30%-60% retracement of wave (3).

SSEC 2-6-2015 (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 German market is outperforming. The Russian market is underperforming.

Global Markets 2-6-2015

 

US Dollar in Consolidation


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 2-6-2015 (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. To keep the uptrend continues, prices must stay above the third parallel line and the Bump Trendline. However, prices broke below both lines last. This breakdown is a bearish sign for the treasury bond, and it could be a bearish reversal.

USB 2-6-2015

 

Gold Falling Back towards Descending Broadening Wedge


The following chart shows that the gold index formed a 6-month descending broadening wedge pattern. Last month prices had a bullish breakout from the wedge. Although the upside price target was projected at 1368 based on Bulkowski’s measure rule on an upward breakout of descending broadening wedges, prices failed to maintain the advance and fell back sharply. Prices may retest the upper boundary of the broadening wedge.

GOLD 2-6-2015

 

Silver Falling Back towards Descending Broadening Wedge


The silver index has also formed a 6-month descending broadening wedge pattern. Last month prices had a bullish breakout from the wedge. Although the upside price target was projected at 21 based on Bulkowski’s measure rule on an upward breakout of descending broadening wedges, prices failed to maintain the advance and fell back sharply. Prices may retest the upper boundary of the broadening wedge.

Silver 2-6-2015

 

GDX Gold Miners ETF Falling back towards Rectangle


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. Last month it broke above the upper boundary of the rectangle bottom pattern. Although the upside price target was projected at 23.5 according to Bulkowski’s measure rule on an upward breakout of rectangle bottom patterns, prices are falling back towards the upper boundary of the rectangle.

GDX 2-6-2015

 

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. Last week it had a bullish reversal, and now prices are testing the fourth parallel line.

Oil 2-6-2015

 

Asset Class Performance Ranking with U.S. Dollor 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. Dollor is outperforming and crude oil is underperforming.

Asset 2-6-2015
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