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10/30/2016 – Market Update

October 31, 2016 Leave a comment

 

A Very Choppy Market under Uncertainty

 

Last week the 30-year US treasury bond price broke below the lower boundary of a 17-month bearish ascending broadening wedge pattern. It implies a potential further decline in bond prices and rising in interest rates. The Shanghai Stock Exchange Composite index is forming a bearish intermediate ending diagonal pattern. The S&P 500 index is near the critical support level of 2120 again, and the general stock market is very choppy with possible sudden changes under uncertainty of Fed’s decision on interest rates this coming week and the presidential election results next week. The broad stock market is projected to be in a short-term bullish time-window until 11/3/2016.

 
Table of Contents


 


 
Broad Market in a Very Choppy Mode


 

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-10-28-2016

 

The LWX Indicator in Next Four Weeks (Forecast)
next-4-wks-lwx-10-28-2016

 

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 129 on Friday 10/28/2016 (up from 34 the previous week) which is above the panic threshold level of 42 and indicates a bearish market. The Wilshire 5000 index is below the 89-day exponential moving average, and the momentum is negative. Based on the forecast of LWX, the broad stock market is projected to be in a short-term bullish time-window until 11/3/2016. (see the second table above). Please note that the current market is very choppy with possible sudden changes under uncertainty of 2016 election results.

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: valley
Date of Next Cycle High: 11/3/2016
Broad Market Instability Index (BIX): 129, above the panic threshold (bearish)
Momentum Indicator: negative (bearish)

 
w5000-10-28-2016

 
Sector Performance Ranking with Wireless Communication 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 0.71% below the EMA89. Outperforming sectors are Wireless Communication (4.48%), Banks (4.21%), and Internet (4.09%). Underperforming sectors are Precious Metals (-7.82%), Biotech (-6.78%), and Home Construction (-6.38%).
 
sector-10-28-2016


 
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 12345 sub-waves. Currently it is in downward sub-wave 3. Now the index is forming a 2-month descending triangle pattern bounded by a top sloping downward line and a bottom horizontal support line at the level of 2120. It could break out to either side from the triangle depending on Fed’s decision on interest rates this coming week and the general election results next week. If prices break below the support level of 2120, the nearest downside price target could be 2080 based on a breakdown from the descending triangle.

 
spx-10-28-2016

 
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] 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.

 
dax-10-28-2016-weekly
 

India Bombay Stock Exchange Index Forming 2-Month Descending Triangle Pattern


 

The India Bombay Stock Exchange 30 Sensex index is forming a 2-month descending triangle pattern bounded by a top sloping downward line and a bottom horizontal support line at the level of 27600. If prices break below the horizontal support level, the nearest downside price target could be 26800 based on a breakdown from the descending triangle.

 
bse-10-28-2016
 

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 12345 sub-wave sequence.

This year upward intermediate wave (B) has gone nowhere and its 12345 sub-waves have been compressed in a 10-month shallow rising wedge pattern which is an ending diagonal according to Elliott Wave principle.

This ending diagonal is a bearish pattern because downward intermediate wave (C) will start once intermediate wave (B) ends. Sub-wave 5 is the last upward wave of intermediate wave (B).

 
ssec-10-28-2016


 
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 Brazilian market is outperforming, and the Australian market is underperforming.
 
global-markets-10-28-2016


 
US Dollar in 22-Month Horizontal Channel


 

In the following weekly chart, the U.S. dollar has formed a 22-month horizontal channel. The dollar is neutral in the trading range between 93 and 100 before prices break out from the channel.

 
usd-10-28-2016

 
US Treasury Bond Bearish Breakdown from 17-Month Ascending Broadening Wedge


 

The 30-year U.S. treasury bond index formed a 17-month ascending broadening wedge pattern. Last week prices broke below the lower boundary of the wedge. Based on this bearish breakdown, the downside price target is projected at 154. A decline in bond prices implies rising in interest rates.

 
usb-10-28-2016

 
Gold Bearish Breakdown from 8-month Rising Wedge Pattern


 

The gold index has broken below the lower boundary of its 8-month rising wedge pattern. Based on this bearish breakdown, the downside price target is projected at 1200.

 
gold-10-28-2016
 
Silver Forming 4-Week Ascending Triangle Pattern


 

The silver index is forming a 4-week ascending triangle pattern and is waiting for a breakout. According to Thomas Bulkowski, the ascending triangle is a mediocre performer but it performs best when the breakout is downward.

 
silver-10-28-2016
 
Crude Oil Forming 7-Month Ascending Triangle Pattern


 

The crude oil is forming a 7-month ascending triangle pattern. Currently prices are in a pullback. We look for a partial decline.

 
oil-10-28-2016

 
Asset Class Performance Ranking with US Dollar Leading


 

The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently the US dollar is outperforming and the US treasury bond is underperforming.
 
asset-10-28-2016