08/19/2018 – Market Update
SPX/Gold Ratio Extends Climb to 12-Year High
The price of gold fell below the 1200 level and broke below the lower boundary of a 4.5-month downtrend channel last week. The ongoing process of “return to the mean” has driven the ratio of the S&P 500 index to the price of gold to 12-year high for stocks’ strong relative strength versus gold (see the chart below). The SPX/Gold ratio is fast approaching a 2.5 projected value of the mean as the price of gold is about to form a bump-and-run reversal bottom pattern. A 6-month inverse head-and-shoulders pattern on the 30-year U.S. treasury bond index flashes a sign of a potential upward breakout of the bond price. The broad stock market is choppy and is projected to be in a short-term bearish time-window until 8/28/2018.
Table of Contents
- Broad Market in Short-Term Bearish Time-Window
- Sector Performance Ranking with Pharmaceuticals Sector Leading
- S&P 500 Index in Primary Upward Wave 5
- German DAX Index: Elliott Wave
- India Bombay Index Forming 5-Month Bullish Uptrend Channel
- Shanghai Composite Index: Intermediate-Term Pictures
- US Treasury Bond Forming 6.5-Month Inverse Head-and-Shoulders Pattern
- US Dollar in 3.5-Month Bullish Uptrend Channel Pattern
- Gold Potentially Forming Bump-and-Run Reversal Bottom Pattern
- Crude Oil Broke Below 1-Year Bullish Uptrend Channel
- Asset Class Performance Ranking with Equity Leading
Broad Market in Short-Term Bearish Time-Window
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 50 on Friday 8/17/2018 (down from 62 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 positive. Based on the forecast of LWX, the broad stock market is projected to be in a short-term bearish time-window until 8/28/2018 (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: 8/28/2018
Broad Market Instability Index (BIX): 50, above the panic threshold (bearish)
Momentum Indicator: positive (bullish)
Sector Performance Ranking with Pharmaceuticals Sector Leading
The following table ranks sectors by using the StockCharts Technical Rank (SCTR) based on six key indicators which cover long-term, medium-term and short-term timeframes. Outperforming sectors are Pharmaceuticals , Real Estate, and Utilities. Underperforming sectors are Precious Metals, Home Construction, and Semiconductors.
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 (5) is in progress. This wave is the last intermediate upward wave of primer wave [5], and it will have a 1–2–3–4–5 sub-wave sequence. Now it is in upward sub-wave 3. The weekly chart below shows a long-term picture of the SPX staying in a 2.5-year bullish uptrend channel.
Intermediate upward wave (5) is in progress. This wave is the last intermediate upward wave of primer wave [5], and it will have a 1–2–3–4–5 sub-wave sequence. Now it is in upward sub-wave 3. The weekly chart below shows a long-term picture of the SPX staying in a 2.5-year bullish uptrend channel.
The S&P 500 index on daily chart below is forming a 5-month uptrend channel. Currently it is in a consolidation with corrective mini-wave ii of upward sub-wave 3.
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 upward wave (5) with corrective sub-wave 2.
India Bombay Index Forming 5-Month Bullish Uptrend Channel
The India Bombay Stock Exchange 30 Sensex index is forming a 5-month bullish uptrend channel pattern. Currently the price is near the all time high.
Shanghai Composite Index: Intermediate-Term Pictures
The Shanghai Stock Exchange Composite index continued its post-bounce decline after a brief dead-cat bounce. The price broke below 2700 level, and it is very bearish.
In the following weekly chart, the Shanghai Stock Exchange Composite index is forming a 3.5-year descending triangle pattern. Last week the price broke below the lower horizontal boundary at 2700. It is very bearish with a downside price target projected at 2000. How to trade triangle chart patterns can be found here.
US Treasury Bond Forming 6.5-Month Inverse Head-and-Shoulders Pattern
The 30-year U.S. treasury bond index is forming a 6.5-month inverse head-and-shoulders pattern. Now the price is near a completion of the right shoulder. Once the price breaks above the neckline, the index would become bullish.
US Dollar in 3.5-Month Bullish Uptrend Channel Pattern
The U.S. dollar index is forming a 3.5-month bullish uptrend channel pattern. The price reached the upper boundary of the channel and pulled back last week. It is bullish as long as the price remains above the lower boundary of the channel.
Gold Potentially Forming Bump-and-Run Reversal Bottom Pattern
The gold index broke below the lower boundary of its 4.5-month bearish downtrend channel last week. This breakdown is a warning sign that excessive speculation may kick in to push the price down fast. This is a possible formation of a bump-and-run reversal bottom pattern.
Silver Forming 2-Month Bearish Downtrend Channel Pattern
The silver index is forming a 2-month bearish downtrend channel pattern. The price reached the lower boundary of the channel last week. It is bearish as long as the price stays below the upper boundary of the channel.
Crude Oil Broke Below 1-Year Bullish Uptrend Channel
The crude oil index formed a 1-year uptrend channel on its weekly chart. The price broke below the lower boundary of the channel last week. This is a warning sign for a trend change on the crude oil index.
Asset Class Performance Ranking with Equity Leading
The following table ranks asset class by using the StockCharts Technical Rank (SCTR) based on six key indicators which cover long-term, medium-term and short-term timeframes. Currently equity is outperforming and gold is underperforming.
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