Home > News > 07/03/2016 – Market Update

07/03/2016 – Market Update

 

Stock Post-Brexit Rally Faces Challenge

 

The sharp post-Brexit rebound of the general stock market faces a challenge as prices approach the overhead resistance. The S&P index is forming a 10-week descending broadening right-triangle pattern which is a tricky chart pattern for the next price bumpy ride. Under the current complicate situations in the developed countries with the post-Brexit challenges in Europe and the uncertainty of the presidential election in America, there would be a money backflow to the emerging markets of Brazil, Russia, India, and China. The stock markets of those emerging countries are strengthening. Watch for a breakout from a 5-month triangle pattern on the Shanghai Stock Exchange Composite index. The broad stock market is projected to be in a short-term bullish time-window until 7/15/2016.

 
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 7-1-2016

 

The LWX Indicator in Next Four Weeks (Forecast)
Next 4 wks LWX 7-1-2016

 

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 8 on Friday 7/1/2016 (down from 67 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 7/15/2016 (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: upward
Date of Next Cycle High: 7/15/2016
Broad Market Instability Index (BIX): 8, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)

 
W5000 7-1-2016

 
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 2.29% above the EMA89. Outperforming sectors are Precious Metals (26.59%), Telecommunication (9.32%), and Wireless Communication (8.46%). Underperforming sectors are Banks (-3.39%), Biotech (-1.87%), and Financials (-0.10%).
 
Sector 7-1-2016


 
S&P 500 Index in Primary Wave Y


 

The SPX since last August has been in a bear market with a complicate correction, potentially in a combination of complex corrective primary waves [W][X][Y]. From last August to February this year, the S&P 500 index was in corrective primary wave [W] as 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. The next wave after wave [X] will be primary wave [Y] that should be a major downward wave as a zigzag correction, and it would be more dramatic than the flat correction of wave [W].

Currently downward primary wave [Y] has started. Wave [Y] will be divided to (A)(B)(C) intermediate sub-waves. Now it is in downward intermediate wave (A) which will have an 1-2-3-4-5 sub-wave sequence.

The SPX is also forming a 10-week descending broadening right-triangle pattern. Prices are going to test the upper horizontal boundary of the triangle. According to Thomas Bulkowski’s statistical data, this chart pattern is one of the trickiest patterns to trade. In our case, currently prices are very close to the previous high after a sharp rebound from the lower boundary of the triangle. A pullback will be likely to form a partial decline inside the triangle. Then the chance to break above the upper horizontal boundary is high, but it would be hard to maintain the momentum. A rally usually fades fast and prices drop back sharply after an upward breakout from the right-triangle pattern. There is a possibility that the outcome of this chart pattern may change some of our very recent Elliott Wave counting on the SPX.

 
SPX 7-1-2016

 
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. Currently it is in downward intermediate wave (5). The index is also in a 17-month bearish downtrend channel.

 
DAX 7-1-2016 (Weekly)
 

India Bombay Stock Exchange Index Bullish Breakout from 18-Month Descending Broadening Wedge Pattern


 

In the weekly chart, the India Bombay Stock Exchange 30 Sensex index has formed a 18-month descending broadening wedge pattern. Last week prices broke above the upper boundary of the wedge and this is a bullish sign for the index. Based on this breakout, the upside price target is projected at 29500.

 
BSE 7-1-2016 (Weekly)
 

Shanghai Composite Index: Intermediate-Term Pictures


 

Since last June, downward intermediate wave (A) has developed a falling wedge on the Shanghai Stock Exchange Composite index with a 12345 sub-wave sequence. Sub-wave 5 is the last downward wave of intermediate wave (A). Once wave (A) ends, upward intermediate wave (B) will start.

Prices have breached the upper boundary of the 12-month falling wedge. Now the index is forming a 5-month symmetrical triangle with higher lows and lower highs. This could be a pattern for a bottom process. Once prices break above the upper boundary of the triangle, upward intermediate wave (B) will resume. Wave (B) is expected to be a big upward wave, and it would retrace about 30%-70% of the amount of the decline made from wave (A). The upside price target is projected at 3650.

Under the current complicate situations in the developed countries with the post-Brexit challenges in Europe and the uncertainty of the presidential election in America, there would be a money backflow to the emerging markets of Brazil, Russia, India, and China. The stock markets of those emerging countries are strengthening.

 
SSEC 7-1-2016


 
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 UK market is outperforming, and the Japanese market is underperforming.
 
Global Markets 7-1-2016


 
US Dollar in 18-Month Horizontal Channel


 

In the following weekly chart, the U.S. dollar has formed an 18-month horizontal channel. The dollar is neutral and sideways before prices break out from the channel.

 
USD 7-1-2016

 
US Treasury Bond Forming 10-Month Rising Wedge Pattern


 

The 30-year U.S. treasury bond index is forming a 10-month rising wedge pattern. Currently prices swing up towards the upper boundary of the wedge.

 
USB 7-1-2016

 
Gold Formed 5-month Right Triangle Pattern


 

After it broke above the upper boundary of an 1-year falling wedge pattern on the weekly chart, the gold index advanced explosively. Then it has formed a 5-month broadening ascending right-triangle pattern. Now prices are testing the upper boundary of the triangle. If prices fail to maintain the up slope of the upper boundary, a sharp swing would be triggered towards the lower horizontal boundary of the triangle.

 
GOLD 7-1-2016 (Weekly)
 
Silver Bullish Breakout from 3-Month Ascending Triangle Pattern


 

The silver index formed a 3-month ascending triangle pattern. Prices broke above the upper horizontal boundary of the triangle, and advanced sharply last week. Based on the breakout from the triangle, the upside price target is projected at 20.5.

 
Silver 7-1-2016

 
Crude Oil in 5-Month Bullish Uptrend Channel


 

Crude oil has formed a 5-month bullish uptrend channel. Prices will swing inside the channel before a breakout from the channel.

 
Oil 7-1-2016

 
Asset Class Performance Ranking with Gold Leading


 

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.
 
Asset 7-1-2016
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