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02/11/2018 – Market Update

February 11, 2018 Leave a comment Go to comments

 

Global Markets Entered Correction Territory

 

The stock market sharply slid into a correction last week with a surge of our Broad Market Instability index far above the panic threshold to a level of 445 which has not been seen for two years. Led by the German market, global stock markets almost everywhere declined around 10% below their recent highs. Technical analysis suggests that the S&P 500 index is in intermediate corrective wave 4 with the first downward sub-wave, but the long-term picture is still in a bullish market. The U.S. dollar just had a bullish reversal from a bump-and-run reversal bottom pattern while crude oil index became bearish with a reversal from a bump-and-run top pattern. 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, surged to 445 on Friday 2/9/2018 (up from 99 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 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): 445, 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 1.80% below the EMA89. Outperforming sectors are Banks (1.53%), Consumer Services (1.23%), and Biotech (-0.35%). Underperforming sectors are Precious Metals (-8.92%), Real Estate (-7.30%), and Utilities (-7.16%).
 

 

 
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 12345 sub-wave sequence ended last month. Now it is in intermediate corrective wave (4) against the uptrend. Intermediate corrective wave (4) will have three sub-waves, typically a, b and c, which a and c are downward waves and b is a bounce wave in between. Currently we are in downward sub-wave a that has so far dropped 8.82% from the all time high. Upward sub-wave b will be the next for a bounce. The SPX is still in a 27-month uptrend channel.

Please see the long-term picture below after this section.

 

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 2015-2016 (pink zones). Since November of 2016, this indicator has been staying in the positive territory for a bull market. Right now the histogram is positive that indicates we are still in a bull market.

 


 
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). So far the index has dropped 10.71% from the high of last month.

 


 
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. Since price reversed at the upper trendline late last month, the index has dropped sharply for 6.28%. Now price is testing the lower boundary of the wedge. If price is unable to hold above the lower boundary of the wedge, a downward breakout from the pattern could push the index further down to 31250.

 


 
Shanghai Composite Index: Intermediate-Term Pictures


 

The Shanghai Stock Exchange Composite index is forming a 1.5-year ascending broadening right-angle pattern. After price reversed at the upper boundary of the pattern, the index has declined sharply for 12%. It may temporarily find a support at the lower horizontal boundary. If price breaks below the horizontal support level, the index could dip to 2860.

 


 
US Treasury Bond in 2-Month Bearish Downtrend Channel


 

The 30-year U.S. treasury bond index is forming a 2-month bearish downtrend channel pattern. It is bearish as long as price stays below the upper boundary of the channel.

 


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


 

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, the bump has dipped more than twice the lead-in height.

Last week price sharply reversed and crossed back above both the second parallel line and the bump trendline. This bump-and-run bottom reversal is bullish for the dollar.

 


 
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 Forming a Bump-and-Run Reversal Top Pattern


 

The crude oil index is forming a potential bump-and-run reversal top pattern. Since price broke above the uptrend channel confined between the lead-in trendline and the first parallel line in December, the index has advanced rapidly into the bump phase along a bump trendline having a steep up slope. By measuring vertically from the lead-in trendline to the highest high, the bump has run up more than twice the lead-in height.

Last week price sharply reversed and crossed back below both the second parallel line and the bump trendline. This bump-and-run top reversal is bearish for crude oil.

 


 
Asset Class Performance Ranking with Gold Leading


 

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