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01/17/2016 – Market Update

January 17, 2016


Volatile Market Going Oversold


Beginning this year, the broad stock market has become very volatile. Market volatility, as measured by the Broad Market Instability Index (BIX), surged dramatically during the last two weeks from 4 to a level of 882 which is the highest reading in four and a half years. As prices dropped below the low of last August, the Wilshire 5000 index lost 8.66% year to date. Beginning a new year with such a large scale decline is regarded as a very bad omen for the direction of the stock market in 2016. In the short-term, the broad stock market is projected to be in a bearish time-window until 1/20/2016, and the oversold market could rebound anytime during the following week.

Market Instability 1-15-2016


Table of Contents


Baltic Dry Index Drops to All-Time Low


The Baltic Dry Index is also known as the “Dry Bulk Index”, and is an economic indicator to measure shipping rates for everything from raw materials such as metals, grains and fossil fuels by sea, in another words, to measure the demand for shipping capacity versus the supply of dry bulk carriers. This index fell to 373 points last Friday, the lowest reading from the London-based Baltic Exchange going back to 1985, as the cost of shipping commodities fell to a record. This is a dangerous sign for the global economy as global trade is grinding to a halt.


BDI 1-15-2016

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 1-15-2016


The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 1-15-2016


The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, surged further and closed at 882 on 1/15/2016 (up from 390 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), and the oversold market could rebound anytime during the following week.

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): 882, above the panic threshold (bearish)
Momentum Indicator: negative (bearish)

W5000 1-15-2016


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 8.30% below the EMA89. Outperforming sectors are Utilities (0.76%), Telecommunication (-2.37%), and pharmaceuticals (-4.27%). Underperforming sectors are Oil Equipment (-22.52%), Energy (-14.29%), and Home Materials (-12.85%).

Sector 1-15-2016


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). Also, sub-wave 3 (blue) is near the end, and upward sub-wave 4 (bear market rally) will be the next.


SPX 1-15-2016


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 1-15-2016 (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 1-15-2016 (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). Currently it is in downward intermediate wave (C).

The Shanghai index formed also an 1-year Head-and-Shoulders top pattern with a neckline near the level of 3000 as a major support. The head and shoulders pattern is not complete and the uptrend is not reversed until neckline support is broken. As it dropped below 3000 last week, the Shanghai index broke through the neckline to the downside and the uptrend reversal is confirmed. After this downward breakout, the projected price decline is typically found by measuring the distance from the neckline to the top of the head. This distance is then subtracted from the neckline to reach a price target. However, I would like to project 2000 as a conservative price target. That will be about another 1000-point falling (over 30% decline) for the Shanghai index. For more information, you may read “How To Trade The Head And Shoulders Pattern” at Investopedia.


SSEC 1-15-2016 (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 Russian, Chinese, and Brazilian markets are underperforming.

Global Markets 1-15-2016


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 1-15-2016 (Weekly)


US Treasury Bullish Breakout from 9-Month Symmetrical Triangle


The 30-year U.S. treasury bond index formed a 9-month symmetrical triangle pattern. Last week prices broke above the upper boundary of the triangle.  This bullish breakout has an upside price target at 165.


USB 1-15-2016


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 boundary. Prices swing inside the wedge before a breakout from the wedge.


GOLD 1-15-2016 (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. It seems forming a bottom recently.


Silver 1-15-2016


Crude Oil Forming 15-Month Falling Wedge Pattern


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


Oil 1-15-2016


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 1-15-2016