10/02/2016 – Market Update

October 3, 2016 Leave a comment

October Likely to be Bearish than Bullish

Crude oil is around 48 where is very near a bullish breakout from a 6-month symmetrical triangle pattern. Gold is at a critical point for a potential breakdown as prices test the 9-month uptrend line around 1320. The S&P 500 index was in a choppy mode last week, and it seems more likely to move higher in the coming week. However, the market momentum is very weak with a slightly positive reading, and a potential bearish reversal top is coming. The broad stock market is projected to be in a short-term bullish time-window until 10/6/2016 and thereafter a bearish time-window through October.

Table of Contents

Broad Market in Short-Term Bullish Time-Window
Sector Performance Ranking with Semiconductors Sector Leading
S&P 500 Index in Primary Corrective Wave Y
German DAX Index: Elliott Wave
India Bombay Stock Exchange Index Broke below 8-month rising wedge pattern
Shanghai Composite Index: Intermediate-Term Pictures
Major Global Markets Performance Ranking
US Dollar in 20-Month Horizontal Channel
US Treasury Bond Forming 16-Month Ascending Broadening Wedge
Gold Formed 8-month Rising Wedge Pattern
Silver Forming 3-Monthk Horizontal Channel
Crude Oil Forming 6-Month Symmetrical Triangle Pattern
Asset Class Performance Ranking with Crude Oil Leading

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)

The LWX Indicator in Next Four Weeks (Forecast)

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 13 on Friday 9/30/2016 (up from 6 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 projected to be in a short-term bullish time-window until 10/6/2016 and thereafter a bearish time-window through October. (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: 10/6/2016

Broad Market Instability Index (BIX): 13, below the panic threshold (bullish)

Momentum Indicator: positive (bullish)

Sector Performance Ranking with Semiconductors 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 1.79% above the EMA89. Outperforming sectors are Semiconductors (9.40%), Internet (6.39%), and Oil Equipment (6.04%). Underperforming sectors are Home Construction (-3.02%), Pharmaceuticals (-2.05%), and Precious Metals (-1.78%).

S&P 500 Index in Primary Wave Y

Upward primary wave [X] started in mid-February is typically 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 the SPX is in downward primary wave [Y] and it will have an intermediate corrective (A)–(B)–(C) wave sequence. Now it is in downward intermediate wave (A).

Intermediate wave (A) will have 1–2–3–4–5 sub-waves. Current upward sub-wave 2 could be a sideways market.

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] had an intermediate (1)–(2)–(3)–(4)–(5) five-wave sequence. Currently the index is in upward primary wave [B] which will have (A)–(B)–(C) intermediate waves. Now it is in downward intermediate wave (B) and it could be a sideways market.

India Bombay Stock Exchange Index Broke below 8-month rising wedge pattern

Last week the India Bombay Stock Exchange 30 Sensex index broke below the lower boundary of the 8-month rising wedge pattern. Based on this bearish breakdown, the downside price target is projected at 25740.

Shanghai Composite Index: Intermediate-Term Pictures

Since the middle of last year, downward intermediate wave (A) has developed a falling wedge on the Shanghai Stock Exchange Composite index with a 1–2–3–4–5 sub-wave sequence. Sub-wave 5 is the last downward wave of intermediate wave (A). Once wave (A) ends, upward intermediate wave (B) starts.

Currently the index is in a bottoming process and prices are still confined in an 8-month ascending triangle pattern. The lower boundary of the triangle pattern would be a support to test.

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 Brazilian market is outperforming, and the Japenese market is underperforming.

US Dollar in 20-Month Horizontal Channel

In the following weekly chart, the U.S. dollar has formed a 20-month horizontal channel. The dollar is neutral in a trading range between 93 and 100 before prices break out from the channel.

US Treasury Bond Forming 16-Month Ascending Broadening Wedge

The 30-year U.S. treasury bond index is forming a 16-month ascending broadening wedge pattern. The lower boundary of the wedge would get tested.

Gold Forming 8-month Rising Wedge Pattern

The gold index is forming an 8-month rising wedge. Prices are confined in the wedge before the next breakout. Prices are testing the lower boundary of the wedge. If the lower boundary gets broken through, the downside price target would be 1200.

Silver Forming 3-Month Horizontal Channel

The silver index is forming a 3-month horizontal channel between 18.50 and 20.75. It is neutral before prices break out from the channel.

Crude Oil Forming 6-Month Symmetrical Triangle Pattern

The crude oil is forming a 6-month symmetrical triangle pattern. Prices are testing the upper boundary of the wedge. If the upper boundary gets breached, the upside price target would be 59.

Asset Class Performance Ranking with Crude Oil Leading

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently crude oil is outperforming and agriculture is underperforming.