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11/29/2015 – Market Update
November 30, 2015
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Seasonal Outperformance in Small Caps
The general market moved in a very narrow range during this last holiday-shortened week except the strong U.S. dollar and small cap stocks. Recent waking up and outperforming of small-cap stocks indicate that the January Effect has started. The internet, semiconductors, and home construction sectors are leading the market slightly higher. The broad stock market is projected to be in a short-term bullish time-window until 12/7/2015.
Table of Contents
- Broad Market in Short-Term Bullish Time-Window
- Sector Performance Ranking with Internet Sector Leading
- S&P 500 Index in Primary Corrective Wave A
- German DAX Index: Elliott Wave
- India Bombay Stock Exchange Index in Bump-and-Run Reversal Top Pattern
- Shanghai Composite Index: Intermediate-Term Picture
- Major Global Markets Performance Ranking
- US Dollar in Bump-and-Run Reversal Top Pattern
- US Treasury in 8-Month Symmetrical Triangle Pattern
- Gold in 1-Year Falling Wedge Pattern
- Silver in 5-Month Broadening Triangle Pattern
- Crude Oil in 14-Month Falling Wedge Pattern
- Asset Class Performance Ranking with US Dollar Leading
January Effect
It is the time to check the “January Effect” that small-cap stocks tend to outperform big caps in January. The following chart is a typical way to gauge the “January Effect” by using the ratio of the Russell 2000 index of smaller companies divided by the Russell 1000 index of largest companies. When the ratio is rising, smaller companies are outperforming big blue chips.
Since late October, the ratio has turned around towards the upside. It indicates that small stocks began to wake up and the “January Effect” started. Small stocks likely take off in December as long as the ratio is above the 13-day exponential moving average (EMA13).
Since late October, the ratio has turned around towards the upside. It indicates that small stocks began to wake up and the “January Effect” started. Small stocks likely take off in December as long as the ratio is above the 13-day exponential moving average (EMA13).
Broad Market 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)
The LWX Indicator in Next Four Weeks (Forecast)
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 1 on 11/27/2015 (down from 29 the previous week) which is below the panic threshold level of 43 and indicates a bullish market. The Wilshire 5000 index is above its 89-day exponential moving average, and the momentum is positive. Based on the forecast of LWX, the broad stock market will be in a short-term bullish time-window until 12/7/2015. (see the second table above).
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 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: upward
Date of Next Cycle Hight: 12/7/2015
Broad Market Instability Index (BIX): 1, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)
Sector Performance Ranking with Internet 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 1.65% above the EMA89. Outperforming sectors are Internet (6.74%), Semiconductors (5.39%), and Home Construction (5.02%). Underperforming sectors are Precious Metals (-10.46%), Oil Equipment (-6.33%), and Wireless Communication (-5.59%), .
S&P 500 Index in Primary Wave A
After it completed the 8-month ending diagonal, the S&P 500 index has rolled into a bear market which will have a primary corrective [A]–[B]–[C] wave sequence in a relative long-term time-frame.
Primary wave [A] is the first down leg of this bear market, and it should contain an intermediate (1)–(2)–(3)–(4)–(5) sub-wave structure. The primary wave is still in the [A] wave with intermediate upward wave (2).
However, intermediate wave (2) will become invalidated and will degrade to downward intermediate wave (1) if it advances above the August high. We will evaluate it depending the market move next week.
Primary wave [A] is the first down leg of this bear market, and it should contain an intermediate (1)–(2)–(3)–(4)–(5) sub-wave structure. The primary wave is still in the [A] wave with intermediate upward wave (2).
However, intermediate wave (2) will become invalidated and will degrade to downward intermediate wave (1) if it advances above the August high. We will evaluate it depending the market move next week.
German DAX Index: Elliott Wave
In the following weekly chart, the German DAX index is in a primary corrective [A]–[B]–[C] wave sequence. Downward primary wave [A] should have an intermediate (1)–(2)–(3)–(4)–(5) five-wave sequence. Now it is in intermediate wave (2) of primary wave [A].
India Bombay Stock Exchange Index in Bump-and-Run Reversal Top Pattern
In the weekly chart, the India Bombay Stock Exchange 30 Sensex index is forming a Bump-and-Run Reversal Top pattern. Since March of 2014, the Bombay index has been in the Bump phase with a sharp trendline as excessive speculation drives prices up steeply. Prices reached a bump height with three times the lead-in height. But this year the index broke below the bump trendline, and it signaled a bearish reversal. The downside risk is very high for the index after prices break blow the 2nd parallel line. The downside price target is projected at 21000 near the Lead-in Trendline.
Shanghai Composite Index: Intermediate-Term Picture
Since the middle of June, the Shanghai index has been in primary wave [2] which is a major correction. Primary wave [2] has an intermediate (A)–(B)–(C) corrective-wave sequence. It has completed intermediate wave (A) and wave (B). Now it is in intermediate wave (C).
The Shanghai Composite index also is in a 1-year Head-and-Shoulders top pattern. Right now it is forming a right shoulder. Once prices break below the neckline, the Shanghai index could fall much lower.
The Shanghai Composite index also is in a 1-year Head-and-Shoulders top pattern. Right now it is forming a right shoulder. Once prices break below the neckline, the Shanghai index could fall much lower.
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 the German market is outperforming. The Brazilian market is underperforming.
US Dollar in Bump-and-Run Reversal Top Pattern
In the following weekly chart, the U.S. dollar is forming a Bump-and-Run Reversal Top pattern. The slope of the bump trendline has been adjusted based on the price movement. Now the US dollar is very bullish and is above the second parallel line again. It will be a sell signal when prices break below the second parallel line.
US Treasury in 8-Month Symmetrical Triangle
The 30-year U.S. treasury bond index is forming an 8-month symmetrical triangle pattern. Prices swing back and forth between two converging boundary lines. The direction of price movement will depend on the next breakout from the triangle.
Gold is in 1-Year Falling Wedge
The weekly chart shows that the gold index has formed a 2-year bearish downtrend channel. Inside the channel, it also formed an 1-year falling wedge. Prices are testing the lower boundaries of both patterns.
Silver in 5-month Broadening Triangle Pattern
The silver index is forming a 5-month broadening triangle pattern. Now prices are testing the lower boundary of the triangle.
Crude Oil Forming 14-Month Falling Wedge Pattern
Crude oil formed an 14-month falling wedge. It could become bullish once prices break above the upper boundary of the wedge. Recently it bounced off the upper boundary of the wedge.
Asset Class Performance Ranking with US Dollar Leading
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently the US dollar is outperforming and crude oil is underperforming.
