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08/06/2017 – Market Update

August 6, 2017 Leave a comment

 

Divergent Market

 

Last market update noted that we have a divergent market with strong large capital stocks and weak small capital stocks as the US dollar dipped. The market divergence intensified during last week when the dollar hit a 15-month low. The Dow blue chip stocks climbed ever higher while the Russell 2000 small capital stocks declined sharply. However, last Friday the dollar had biggest one-day gain so far this year on strong US jobs data. This huge rebound makes a potential bullish reversal for the dollar and a possible transition of strength from the large cap stocks to small cap stocks. Readings of the Broad Market Instability Index has surged to 50 which is above the panic threshold. The broad stock market is projected to be in a short-term bearish time-window until 8/14/2017.

 

 
Table of Contents


 

 

 
Broad Market in Short-Term Bearish Time-Window


 

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 51 on Friday 8/4/2017 (up from 28 the previous week) which is above the panic threshold level of 42 and indicates a bearish 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 8/14/2017. (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: downward
Date of Next Cycle Low: 8/14/2017
Broad Market Instability Index (BIX): 51, above the panic threshold (bearish)
Momentum Indicator: negative (bearish)

 


 
Sector Performance Ranking with Home Construction 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 2.59% above the EMA89. Outperforming sectors are Home Construction (6.90%), Biotech (5.20%), and Internet (4.87%). Underperforming sectors are Oil Equipment (-4.02%), Energy (-1.95%), and Precious Metals (-1.21%).
 

 

 
S&P 500 Index in Primary Wave B


 

The following chart is a 3-year weekly chart of the S&P index. The SPX has formed a potential expended flat pattern with [A][B][C] primary corrective waves. Upward wave [B] becomes an over 1-year rising wedge with (A)(B)(C) intermediate waves, and it runs beyond the beginning of downward wave [A] as an expanded flat. The index is bullish as long as prices stay above the lower boundary of the rising wedge, except a bearish bias for a potential downward breakout.

 


 
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. Upward primary wave [B] has developed with (A)(B)(C) intermediate waves. Recently upward intermediate wave (C) has ended. Downward primary wave [C] is starting.

 


 
India Bombay Index Forming 6-Month Bullish Uptrend Channel


 

The India Bombay Stock Exchange 30 Sensex index is forming a 6-month bullish uptrend channel. The index just bounced off the upper boundary of the channel.

 


 
Shanghai Composite Index: Intermediate-Term Pictures


 

The Shanghai Stock Exchange Composite index is forming a 3-month uptrend channel pattern. The index is bullish as long as prices stay above the lower boundary of the channel.

 


 
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 Indian market is outperforming, and the Russian market is underperforming.
 


 
US Treasury Bond in Bullish 5-Month Uptrend Channel Pattern


 

The 30-year U.S. treasury bond index formed a 5-month uptrend channel pattern. The index is bullish as long as prices stay above the lower boundary of the channel.

 


 
US Dollar Broke Below 4.5-Month Falling Wedge Pattern


 

The U.S. dollar index formed a 4.5-month falling wedge pattern. Recently prices have broken below the lower boundary of the wedge. According to Thomas Bulkowski’s analysis on falling wedge patterns, after a downward breakout, price sometimes curls around the front of the wedge and soars upward. The busted pattern presents a profit opportunity from the long side. Last week prices were very close to our price target 92.2, and had a big bounce last Friday. This should be a bullish reversal signal for the dollar.

 


 
Gold in 5.5-Month Horizontal Trading Range


 

The gold index is forming a 5.5-month horizontal trading range between 1200 and 1300.
It is neutral before prices break out from the trading range.

 

 
Silver Forming 4-month Bearish Downtrend Channel


 

The silver index is forming a 4-month bearish downtrend channel. Last week prices reached upper boundary of the channel, and declined sharply again.

 

 
Crude Oil Forming 7-Month Descending Broadening Wedge


 

Crude oil index is forming a 7-month descending broadening wedge pattern. It becomes very volatile inside the wedge. Prices are approaching the upper boundary of the wedge.

 


 
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 US dollar is underperforming.