As the stock market rally extended, the Broad Market Instability index (BIX) that we monitored stayed at a very low level recently for a while. The BIX has reached extremely low, and it is not going to stay below the reading of 2 or 3 very long. The bear market rally is setting up another sequence of corrective waves. Fed meeting next week and upcoming earnings reports will be major factors to change the market volatility.

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 Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 2 on Friday 4/15/2016 (down from 3 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 neutral time-window until 4/22/2016 (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:

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 3.78% above the EMA89. Outperforming sectors are Precious Metals (22.99%), Materials (7.22%), and Utilities (5.48%). Underperforming sectors are Banks (0.71%), Pharmaceuticals (1.00%), and Biotech (2.07%).
 

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. Wave [X] may or may not have a A-B-C sub-wave structure. A bearish reversal will be a sign for wave [X] to end.

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.

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 downward intermediate wave (5) has started. The index is also in a 14-month bearish downtrend channel.

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. The downside price target is projected at 21000 around the Lead-in Trendline.

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 1–2–3–4–5 sub-wave sequence. Now sub-wave 4 has reached the upper boundary of the wedge. Potentially, there is downward sub-wave 5 still left to complete intermediate wave (A). Sub-wave 5 holds a threat to re-test the low of sub-wave 3.

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).

The table below is the percentage change of major global stock market indexes against the 89-day exponential moving average (EMA89). Currently the Brazilian and Russian markets are outperforming. The Japanese markets is underperforming.
 

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.

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.

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. Now it is in a consolidation.

Last week the silver index broke above the upper boundary of its 2-month horizontal channel. Based on this bullish breakout, the upside price target is projected at 17.

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.

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.