01/22/2017 – Market Update
Weeks-Long Flat Market Waiting for a Big Move
A sideways market for stocks went to a fifth week as the market momentum became negative. Pharmaceuticals, biotech, and healthcare sectors mostly underperformed the general market. Markets are due for a big move, and it is time to prepare for the return of volatility. The broad stock market is projected to be in a short-term bearish time-window until 2/9/2017.
Table of Contents
- Broad Market Going to Turn into Short-Term Bearish Time-Window
- Sector Performance Ranking with Wireless Communication Sector Leading
- S&P 500 Index in Primary Corrective Wave B
- German DAX Index: Elliott Wave
- India Bombay Index in a Consolidation
- Shanghai Composite Index: Intermediate-Term Pictures
- Major Global Markets Performance Ranking
- US Treasury Bond Bearish Below 18-Month Ascending Broadening Wedge
- US Dollar Forming a Potential Bump and Run Reversal Top Pattern
- Gold Forming a Potential Bump and Run Reversal Bottom Pattern
- Silver Forming 4-Month Downtrend Channel
- Crude Oil above 8-Month Ascending Triangle Pattern
- Asset Class Performance Ranking with Copper Leading
Broad Market Going to Turn into Short-Term Bearish Time-Window
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 12 on Friday 1/20/2017 (up from 4 the previous week) which is below the panic threshold level of 43 and indicates a bullish 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 projected to be in a short-term bearish time-window until 2/9/2017. (see the second table below).
The LWX Indicator in Last Four Weeks (Actual)
The LWX Indicator in Next Four Weeks (Forecast)
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: peak
Date of Next Cycle Low: 2/9/2017
Broad Market Instability Index (BIX): 12, below the panic threshold (bullish)
Momentum Indicator: negative (bearish)
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 3.06% above the EMA89. Outperforming sectors are Wireless Communication (7.89%), Banks (7.73%), and Semiconductors (5.86%). Underperforming sectors are Pharmaceuticals (-1.98%), Biotech (-0.80%), and Healthcare (-0.18%).
S&P 500 Index in Primary Wave B
The following chart is a 3.5-year weekly chart of the S&P index. The SPX has formed a 2-year potential expended flat pattern with [A]–[B]–[C] primary corrective waves. Currently upward wave [B] is running beyond the beginning of downward wave [A] as an expanded flat. Once wave [B] ends, downward primary wave [C] will start.
The SPX also formed a 2-year broadening wedge pattern. Prices have been stayed near the upper boundary of the wedge for about six weeks. A downward wave will start if prices fail to break above the upper boundary of the wedge.
The SPX also formed a 2-year broadening wedge pattern. Prices have been stayed near the upper boundary of the wedge for about six weeks. A downward wave will start if prices fail to break above the upper boundary of the wedge.
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 has (A)–(B)–(C) intermediate waves. And now it is in upward intermediate wave (C). Downward primary wave [C] will be the next.
India Bombay Index in a Consolidation
The India Bombay Stock Exchange 30 Sensex index has recently had a breakout to the upside of a 2-month rectangle bottom or a “W” bottom, with an upside price target projected at 27650. Last week prices retreated and may retest the upper boundary of the horizontal channel.
Shanghai Composite Index: Intermediate-Term Pictures
Last year upward intermediate wave (B) went nowhere and its 1–2–3–4–5 sub-waves were compressed in an 11-month shallow rising wedge pattern which is an ending diagonal according to Elliott Wave principle. It failed to break above the upper boundary of the wedge for the price target of 3650.
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). Now sub-wave 5 has ended and downward intermediate wave (C) has started.
Now prices are testing the lower boundary of the wedge. A sell-off could be triggered if a breakdown from the level of 3100 occurs. A potential decline is projected to go down to 2900.
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). Now sub-wave 5 has ended and downward intermediate wave (C) has started.
Now prices are testing the lower boundary of the wedge. A sell-off could be triggered if a breakdown from the level of 3100 occurs. A potential decline is projected to go down to 2900.
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 Russian market is outperforming, and the Chinese market is underperforming.
US Treasury Bond Bearish Below 17-Month Ascending Broadening Wedge
Since it broke below a 17-month ascending broadening wedge pattern in early November, the 30-year U.S. treasury bond index has been bearish and stayed below the wedge. The downside price target is projected at 147 which is the low of last July.
US Dollar Forming a Potential Bump and Run Reversal Top Pattern
The U.S. dollar index is forming a potential Bump and Run Reversal Top pattern. Since the index broke above a 6-month uptrend channel in the middle of November, prices have advanced sharply along a steep bump trendline as excessive speculation drives prices up in a bump phase. The uptrend will continue only if prices break above the second parallel line and stay above the bump trendline.
Recently prices have broken below the bump trendline after near three weeks of unsuccess to break above the second parallel line. Last week the decline reached our first downside price target of 100.5. Now it may have a short-term bounce from the first parallel line.
Recently prices have broken below the bump trendline after near three weeks of unsuccess to break above the second parallel line. Last week the decline reached our first downside price target of 100.5. Now it may have a short-term bounce from the first parallel line.
Gold Forming a Potential Bump and Run Reversal Bottom Pattern
The gold index is forming a potential Bump and Run Reversal Bottom pattern. In the middle of November, the index broke below a 3-month downtrend channel. Since then prices have declined sharply along a steep bump trendline as excessive speculation drives prices down in a bump phase. The downtrend will continue only if prices break below the second parallel line and stay below the bump trendline.
Recently prices have broken above the bump trendline with a bullish reversal. Now prices are above the first parallel line which becomes a support, and prices may have a consolidation soon. If the index can stay above the first parallel line, the next upside price target would be projected at 1250 near the lead-in trendline.
Recently prices have broken above the bump trendline with a bullish reversal. Now prices are above the first parallel line which becomes a support, and prices may have a consolidation soon. If the index can stay above the first parallel line, the next upside price target would be projected at 1250 near the lead-in trendline.
Silver Forming 4-Month Downtrend Channel
The silver index is forming a 4-month downtrend channel. Prices reached the upper boundary of the channel last week. The index would have a retracement or a consolidation if prices are not able to break above the upper boundary of the channel.
Crude Oil above 8-Month Ascending Triangle Pattern
The crude oil has broken above the upper horizontal resistance boundary of an 8-month ascending triangle pattern. The upside price target is projected at 63.5 as long as prices stay above the upper boundary of the triangle.
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.
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