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04/24/2016 – Market Update

April 25, 2016 Leave a comment

 

Watch Out for Market Inflection Point

 

The technology sector became underperforming the market last week after the disappointed earning reports from bellwethers Microsoft (MSFT) and Alphabet (GOOG). Upcoming earning reports and the Fed meeting this week will affect the bear market rally to continue or reverse. Based on the forecast of the Leading-Wave Index (LWX), the broad stock market is projected to change its short-term time-window from bullish to bearish this week around 4/27/2016.

 
Table of Contents


 


 
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)
Last 4 wks LWX 4-22-2016

 

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 4-22-2016

 

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 3 on Friday 4/22/2016 (up from 2 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. The Wilshire 5000 index is above the 89-day exponential moving average, and the momentum is positive. Based on the forecast of LWX, the broad stock market is in a short-term bullish time-window until 4/27/2016 followed by a bearish time-window (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: upward
Date of Next Cycle High: 4/27/2016
Broad Market Instability Index (BIX): 3, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

 
W5000 4-22-2016

 
Sector Performance Ranking with Precious Metals 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 4.04% above the EMA89. Outperforming sectors are Precious Metals (22.97%), Energy (9.20%), and Materials (8.79%). Underperforming sectors are Technology (1.54%), Utilities (1.82%), and Internet (1.98%).
 
Sector 4-22-2016


 
S&P 500 Index in Primary Wave X


 

The bear market started from last August has become a complicate correction, potentially in a combination of complex corrective waves [W][X][Y]. From last August to February this year, the S&P 500 index was in corrective primary wave [W]. Wave [W] has finished in a flat correction with an intermediate (A)(B)(C) sub-wave structure.

Since mid-February, upward primary wave [X] has developed. Wave [X] typically is just a wave inside the complex W-X-Y wave structure to link two corrective sequences. Once wave [X] finishes, the next market correction with wave [Y] would be more dramatic than the flat correction of wave [W], and the low of February would be re-tested. Upcoming downward wave [Y] should be a zigzag correction with another set of intermediate waves (A)(B)(C). The time duration of upcoming downward wave [Y] would be roughly same as wave [W], i.e., about 6 months. More information about correction combinations can be found at elliottwave.com.

Wave [X] may or may not have a A-B-C sub-wave structure. A bearish reversal may happen anytime this coming week, and it will be a sign for wave [X] to end.

 
SPX 4-22-2016

 
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 still in upward intermediate wave (4). The index is also in a 14-month bearish downtrend channel.

 
DAX 4-22-2016 (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 formed a Bump-and-Run Reversal Top pattern. Early last year, the index broke below the bump trendline, and it signaled a bearish reversal. Since then, it has developed a descending broadening wedge. Now it is testing the upper boundary resistance of the wedge. The downside price target is projected at 21000 around the Lead-in Trendline.

 
BSE 4-22-2016 (Weekly)
 

Shanghai Composite Index: Intermediate-Term Pictures


 

The chart below is a daily chart of the Shanghai Stock Exchange Composite index for last 12 months. Since last June, downward intermediate wave (A) has been developing a falling wedge with a 12345 sub-wave sequence. Recently upward sub-wave 4 tested the upper boundary of the wedge, and failed to break through. Now downward sub-wave 5 just started. Potentially, sub-wave 5 holds a threat to re-test the low of sub-wave 3. Last week the Chinese stock market was weakening, and underperformed global markets.

Once sub-wave 5 ends, upward intermediate wave (B) will start. Wave (B) is expected to be a big upward wave, and it would retrace about 30%-70% of the amount of wave (A). In other words, wave (B) could advance to a level between 3800 and 4800 after it has a bullish breakout from the falling wedge. Regardless, we will use the upper boundary of the falling wedge to gauge a breakout of upcoming upward-wave (B).

 
SSEC 4-22-2016


 
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 Russian and Brazilian markets are outperforming. The Chinese market is underperforming.
 
Global Markets 4-22-2016


 
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. Early this year prices broke below the bump trendline which is a sell signal for the dollar.

 
USD 4-22-2016 (Weekly)

 
US Treasury Bond Forming 10-Month Broadening Wedge


 

After an explosive advance, the 30-year U.S. treasury bond index is forming a 10-month broadening wedge pattern. Prices typically have large swings inside the wedge.

 
USB 4-22-2016

 
Gold in Price Consolidation


 

After it broke above the upper boundary of an 1-year falling wedge pattern on the weekly chart, the gold index has advanced explosively. This bullish breakout has a projected upside price target at 1300. Last three months it was in a consolidation, and formed a diamond pattern which could be for a continuation or a reversal depending on which side to break out.

 
GOLD 4-22-2016 (Weekly)
 
Silver Reached Upside Price Target


 

Recently the silver index has broken above the upper boundary of its 2-month horizontal channel. Based on this bullish breakout, the upside price target was projected at 17. This price target was reached last week.

 
Silver 4-22-2016

 
Crude Oil in 3-Month Rising Wedge Pattern


 

After recently prices broke above the upper boundary of the 1.5-year falling wedge, crude oil has been forming a 3-month rising wedge. It will swing inside the wedge before the next breakout. Currently it is testing the upper boundary of the wedge.

 
Oil 4-22-2016

 
Asset Class Performance Ranking with Equity Leading


 

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently equity is outperforming and the US dollar is underperforming.
 
Asset 4-22-2016