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02/04/2018 – Market Update

February 5, 2018 Leave a comment

 

Stock Market on Alert for Correction

 

The broad stock market had the biggest weekly drop in more than 2 years last week while readings of our Broad Market Instability index surged above the panic threshold. The Elliott Wave analysis suggests that the S&P 500 index just started an intermediate corrective wave but the long-term primary wave is still in a bullish uptrend. The US dollar likely forms a Bump-and-Run Reversal Bottom pattern that is setting up for a potential buy opportunity for the dollar. Crude oil index remains in a 5-month bullish uptrend channel. The broad stock market is projected to be in a short-term bearish time-window until 2/14/2018.

 
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 99 on Friday 2/2/2018 (up from 8 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 2/14/2018. (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: 2/14/2018
Broad Market Instability Index (BIX): 99, above the panic threshold (bearish)
Momentum Indicator: negative (bearish)

 


 
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 3.37% above the EMA89. Outperforming sectors are Banks (7.76%), Consumer Services (7.10%), and Internet (6.16%). Underperforming sectors are Utilities (-5.59%), Real Estate (-4.20%), and Home Construction (-2.70%).
 

 

 
S&P 500 Index in Primary Upward Wave 5

 

The SPX is in primer impulse wave [5] which is the last upward wave of a multi-year primer [1]–[2]–[3]–[4]–[5] five-wave sequence started from 2009. The current primer upward wave [5] is in progress to develop an intermediate (1)–(2)–(3)–(4)–(5) five-wave sequence.

Intermediate upward wave (3) with 1–2–3 –4–5 sub-wave sequence has ended. Now it just started intermediate corrective wave (4) against the uptrend. Intermediate corrective wave (4) will have three sub-waves, typically a, b and c, which a and b are downward waves and b is a bounce wave in between. Currently we are in downward sub-wave a.

 


 
German DAX Index: Elliott Wave

 

In the following weekly chart, the German DAX index is in primer impulse wave [5] of a multi-year primer [1]–[2]–[3]–[4]–[5] five-wave sequence. Upward primer wave [5] is in progress to develop an intermediate (1)–(2)–(3)–(4)–(5) five-wave sequence. Currently it is in intermediate corrective wave (4).

 


 
India Bombay Index Forming 5-Month Ascending Broadening Wedge Pattern

 

The India Bombay Stock Exchange 30 Sensex index is forming a 5-month ascending broadening wedge pattern. The broadening aspect of this pattern suggests increasing price volatility. Price reversed at the upper trendline last week, and now moves towards the lower trendline.

 


 
Shanghai Composite Index: Intermediate-Term Pictures

 

The Shanghai Stock Exchange Composite index is forming a 2-year bullish uptrend channel pattern. It is bullish as long as price stay above the lower boundary of the channel.

 


 
US Treasury Bond Broke below 3-Month Falling Wedge Pattern

 

The 30-year U.S. treasury bond index broke below the lower boundary of a 3-month falling wedge pattern last week. It is bearish with a downside price target at 145. However, this price target was quickly reached last week.

 


 
US Dollar Forming a Potential Bump-and-Run Reversal Bottom

 

The U.S. dollar index is forming a potential bump-and-run reversal bottom pattern. Since price broke below the downtrend channel confined between the lead-in trendline and the first parallel line last month, the index has dropped rapidly into the bump phase along a bump trendline having a steep down slope. By measuring vertically from the lead-in trendline to the lowest low last week, the bump has dipped more than twice the lead-in height.

It will be a bullish reversal sign once price crosses back above both the second parallel line and the bump trendline. The bump-and-run reversal bottom is a chart pattern that is a surprisingly good performer playing into the upside, discovered by Thomas Bulkowski in 1999.

 


 
Gold Forming 7-month Ascending Right Triangle Pattern

 

The gold index is forming a 7-month ascending right triangle pattern. Recently price has bounced off the upper horizontal boundary of the triangle. Now it moves towards the lower boundary of the pattern.

 

 
Silver Forming 7-Month Symmetrical Triangle Pattern

 

The silver index is forming a 7-month symmetrical triangle pattern. Recently price has bounced off the upper boundary of the pattern. Now it moves towards the lower boundary of the triangle.

 

 
Crude Oil in Bullish 5-Month Uptrend Channel

 

Crude oil index is forming a 5-month bullish uptrend channel. It is bullish as long as price stays above the lower boundary of the channel.

 


 
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 the US treasury bond is underperforming.
 
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