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01/10/2016 – Market Update

January 10, 2016 Leave a comment Go to comments


Worst Opening Week Ever


Led by sharp stocks decline in the major emerging markets like China, Russia, and Brazil, global stock markets ended their worst opening week we have ever seen. Counting on the first five trading days, the S&P 500 index dropped 5.96% this year, which is worse than the 5.3% loss for the bad year in 2008. Our Broad Market Instability Index (BIX) surged to 390 last Friday. The SPX and German DAX are in the mid-way of an intermediate downward wave, and are most likely to test the August low. The Shanghai Composite index is nearing a breakdown on a bearish head-and-shoulders top pattern which could result in another 1000-point falling. The broad stock market is projected to be in a short-term bearish time-window until 1/20/2016.

Table of Contents


Bear Market

The historic data from last 20 years indicate there is about 90% of chance for the S&P 500 index in a bear market when the monthly MACD histogram stayed in the negative territory. The monthly chart of the S&P 500 index below shows a correspondence with negative MACD histograms for the bear markets of 2000-2001, 2008-2009, and 2015-present (pink zones). The current one has had the MACD histogram in the negative territory since last year. We are in the early stage of the current bear market, and the market has plenty more room to fall.

SPX Monthly MACD 1-8-2016


Broad Market 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 1-8-2016

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 1-8-2016

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, surged and closed at 390 on 1/8/2016 (up from 4 the previous week) which is above the panic threshold level of 42 and indicates a bearish market. The Wilshire 5000 index is below the 89-day exponential moving average, and the momentum is negative. Based on the forecast of LWX, the broad stock market is in a short-term bearish time-window until 1/20/2016 (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:

Short-Term Cycle: downward
Date of Next Cycle Low: 1/20/2016
Broad Market Instability Index (BIX): 390, above the panic threshold (bearish)
Momentum Indicator: negative (bearish)

W5000 1-8-2016


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 6.53% below the EMA89. Outperforming sectors are Utilities (0.37%), precious metals (0.05%), and Real Estate (-1.78%). Underperforming sectors are Oil Equipment (-19.60%), Energy (-13.40%), and Home Construction (-12.19%).

Sector 1-8-2016


S&P 500 Index in Primary Wave A

After it completed the 8-month ending diagonal in last July, 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. Currently it is in intermediate downward wave (3) inside primary wave [A].

Intermediate wave (3) is a relative big middle-term downward wave and it would go below the August low. Wave (3) will have 1-2-3-4-5 sub-waves. Now it is in downward sub-wave 3 (blue).

Please check attached Elliott Wave graph below to find out where we are now in the market.

SPX 1-8-2016

This Elliott Wave graph below shows a big picture of the market status. Currently the long-term wave is downward with primary wave [A], and the middle-term wave is downward in the mid-way of intermediate wave (3). We are in a bear market!
Elliott Wave 1-8-2016


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 downward intermediate wave (3) of primary wave [A]. Wave (3) would go below wave (1).

DAX 1-8-2016 (Weekly)


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. Last 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.

BSE 1-8-2016 (Weekly)


Shanghai Composite Index: Intermediate-Term Picture

The chart below is a weekly chart of the Shanghai Stock Exchange Composite index. Since the middle of last 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. It is going to complete a right shoulder. Now prices are sharply approaching the neckline near 3000. If prices break through the neckline, the downside price target is projected at 2000.

SSEC 1-8-2016 (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 the Australian market is outperforming. The Brazilian, Russian, and Chinese markets are underperforming.

Global Markets 1-8-2016


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. Recently prices broke below the second parallel line which is a sell signal for the dollar.

USD 1-8-2016 (Weekly)


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.

USB 1-8-2016


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. Recently prices bounced off the lower boundaries of both patterns. Prices swing inside the wedge before a breakout from the wedge.

GOLD 1-8-2016 (Weekly)


Silver in 2-month Broadening Wedge Pattern

The silver index is forming a 2-month broadening wedge pattern. Prices typically have volatile large swings inside this pattern before a breakout. Hopefully, it may become a bottom for silver.

Silver 1-8-2016


Crude Oil Forming 15-Month Falling Wedge Pattern

Crude oil formed an 15-month falling wedge. Prices swing inside the wedge. Now it is testing the lower boundary of the wedge. It is bearish until prices break above the upper boundary of the wedge.

Oil 1-8-2016


Asset Class Performance Ranking with US Treasury 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 treasury bond is outperforming and crude oil is underperforming.

Asset 1-8-2016
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