The Broad Market Instability index stayed above the panic threshold last week while the market momentum was negative. The S&P 500 index is forming a bearish 2-month head-and-shoulders top pattern and prices are about to test the neckline at the level of 2040. Based on the forecast of the Leading-Wave Index, the broad stock market is projected to be in a short-term bearish time-window until 5/18/2016.

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 87 on Friday 5/13/2016 (up from 67 the previous week) which is above the panic threshold level of 42 and indicates a bearish market. The Wilshire 5000 index is above 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 5/18/2016 (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 0.79% above the EMA89. Outperforming sectors are Precious Metals (21.24%), Utilities (4.43%), and Real Estate (3.75%). Underperforming sectors are Biotech (-4.50%), Home Construction (-3.01%), and Technology (-2.14%).
 

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. Currently, wave [X] has ended, and wave [Y] has started. More information about correction combinations can be found at elliottwave.com

Primary wave [Y] should be a zigzag correction, and it would be more dramatic than the flat correction of wave [W]. The low of February would be re-tested. The time duration of downward wave [Y] would be roughly same as wave [W], i.e., about 6 months. It means that the S&P 500 index would be in a correction until late October.

Downward wave [Y] will have a set of intermediate waves (A)–(B)–(C). Also, wave (A) will go down with a 1–2–3–4–5 sub-wave sequence. Now it is in corrective sub-wave 2 in downward intermediate wave (A). Sub-wave 2 could be a sideways market.

It is also forming a 2-month head-and-shoulders top pattern. Prices are going to test the neckline at the level of 2040.

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 (5). The index is also in a 15-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. Recently it tested the upper boundary resistance of the wedge. Now it just bounced off the resistance and resumed the downtrend. 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. Recently upward sub-wave 4 tested the upper boundary of the wedge, and failed to break through. Now it is in downward sub-wave 5. Potentially, sub-wave 5 holds a threat to re-test the low of sub-wave 3.

Sub-wave 5 is the last downward wave of intermediate wave (A). 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 Russian and Brazilian markets are outperforming. The Chinese and Japanese markets are 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. Since then, prices has declined. Recently the index found a short-term support at the first parallel line.

The 30-year U.S. treasury bond index is forming an 11-month broadening wedge pattern. Prices typically have large swings inside the wedge before the next breakout.

After it broke above the upper boundary of an 1-year falling wedge pattern on the weekly chart, the gold index has advanced explosively. It is forming a 3-month uptrend channel. The upside price target is projected at 1370.

The silver index is forming a 5-month ascending broadening wedge. Prices typically have large swings inside the wedge before the next breakout.

Crude oil has formed a 4-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 gold is outperforming and the US dollar is underperforming.