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11/20/2016 – Market Update
November 21, 2016
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Stock Market at a Critical Juncture
A long-term technical picture suggests that the stock market reaches a critical juncture as the monthly MACD histogram of the S&P 500 index is approaching the zero line after it has stayed in the negative territory for near two years. Once the histogram gets into the positive territory, we would have a bull market going forward. Otherwise, a bear market would return if the histogram deeps into the negative territory again. The broad stock market is projected to be in a short-term bullish time-window until 11/22/2016.
Table of Contents
- Broad Market in Short-Term Bullish Time-Window
- Sector Performance Ranking with Banks Sector Leading
- S&P 500 Index in Primary Corrective Wave Y
- German DAX Index: Elliott Wave
- India Bombay Stock Exchange Index Bearish Below 2-Month Descending Triangle Pattern
- Shanghai Composite Index: Intermediate-Term Pictures
- Major Global Markets Performance Ranking
- US Dollar Bullish Breakout from Near 2-Year Horizontal Channel
- US Treasury Bond Bearish Below 17-Month Ascending Broadening Wedge
- Gold in 3.5-month Descending Broadening Wedge Pattern
- Silver in 4.5-month Descending Broadening Wedge Pattern
- Crude Oil in 7-Month Ascending Triangle Pattern
- Asset Class Performance Ranking with Copper Leading
It is Time to Check on SPX Monthly MACD Histogram
The historic data from last 20 years indicate there is about 90% of chance for the S&P 500 index in a bear market when the monthly MACD histogram stayed in the negative territory. The monthly chart of the S&P 500 index below shows a correspondence with negative MACD histograms for the bear markets of 2000-2001, 2008-2009, and 2015-present (pink zones). The current one in a flat corection has had the MACD histogram in the negative territory since early 2015. But now it is very close to the zero line of the histogram, and the market is at a critical juncture. If the histogram gets into the positive territory, we would have a bull market going forward. Otherwise, the bear market would remain if the histogram deeps into the negative territory again.
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 14 on Friday 11/18/2016 (down from 60 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 11/22/2016. (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 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: 11/22/2016
Broad Market Instability Index (BIX): 14, below the panic threshold (bullish)
Momentum Indicator: positive (bullish)
Sector Performance Ranking with Banks 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 2.51% above the EMA89. Outperforming sectors are Banks (16.07%), Financials (7.23%), and Semiconductors (6.72%). Underperforming sectors are Precious Metals (-15.53%), Real Estate (-5.84%), and Utilities (-4.76%).
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) which will have 1–2–3–4–5 sub-waves. Currently it is in upward sub-wave 4.
Downward intermediate wave (A) becomes a 3.5-month descending broadening right triangle pattern. Prices are testing the resistance at the upper horizontal boundary of the wedge. The end of upward sub-wave 4 is near, and downward sub-wave 5 will be the next.
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) which will have 1–2–3–4–5 sub-waves. Currently it is in upward sub-wave 4.
Downward intermediate wave (A) becomes a 3.5-month descending broadening right triangle pattern. Prices are testing the resistance at the upper horizontal boundary of the wedge. The end of upward sub-wave 4 is near, and downward sub-wave 5 will be the next.
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 has been in a flat sideways market since August.
India Bombay Stock Exchange Index Bearish Below 2-Month Descending Triangle Pattern
The India Bombay Stock Exchange 30 Sensex index has been below a 2-month descending triangle pattern bounded by a top sloping downward line and a bottom horizontal support line at the level of 27600. Although our downside price target of 26800 has been reached, the downside risk still remains. The next downside price target is projected at 25600 based on the bearish breakdown of the previous rising wedge pattern.
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.
This year upward intermediate wave (B) has gone nowhere and its 1–2–3–4–5 sub-waves have been compressed in a 10-month shallow rising wedge pattern which is an ending diagonal according to Elliott Wave principle.
This rising wedge 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).
This year upward intermediate wave (B) has gone nowhere and its 1–2–3–4–5 sub-waves have been compressed in a 10-month shallow rising wedge pattern which is an ending diagonal according to Elliott Wave principle.
This rising wedge 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).
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 Jananese market is outperforming, and the Indian market is underperforming.
US Dollar Bullish Breakout from Near 2-Year Horizontal Channel
In the following weekly chart, last week the U.S. dollar broke above the upper horizontal resistance of a near 2-year horizontal channel between 93 and 100. Based on this bullish breakout, the upside price target is projected at 105.6.
US Treasury Bond Bearish Below 17-Month Ascending Broadening Wedge
The 30-year U.S. treasury bond index has broken below a 17-month ascending broadening wedge pattern. Although the first downside price target of 154 was reached, the downside risk still remains. The next downside price target is projected at 147 which is the low of July.
Gold in 3.5-month Descending Broadening Wedge Pattern
The gold index has formed a 3.5-month descending broadening wedge pattern. Currently is in a sharp decline towards the lower boundary of the wedge. The lower boundary of the wedge around 1200 will be a support to be tested.
Silver in 4.5-month Descending Broadening Wedge Pattern
The silver index has formed a 4.5-month descending broadening wedge pattern. One week ago the failed rally formed a partial rising which is a very bearish sign, and it turned into a sharp decline. The lower boundary of the wedge near 16.25 will be a support to be tested.
Crude Oil in 7-Month Ascending Triangle Pattern
The crude oil is forming a 7-month ascending triangle pattern. Last week prices bounced off the lower boundary of the triangle. Currently it is in an upward wave towards the upper horizontal boundary.
Asset Class Performance Ranking with Copper Leading
The following table is the percentage change of each asset class (in ETFs) against the 89-day exponential moving average (EMA89). Currently copper is outperforming and the US treasury bond is underperforming.
