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10/28/2018 – Market Update

October 29, 2018 Leave a comment

 

Oversold Markets Looking for a Bounce

 

The decline of the stock market last week formed the second bottom of the correction within this month. On weekly basis of the sector rank, almost all sector went down except Consumer Goods and Home Construction sectors. The SPX is near the end of downward wave C of a corrective sub-wave A-B-C sequence. The stock market is oversold and it is likely to have a bounce. Gold and silver are neutral as they stay in their short-term horizontal trading ranges. The 30-year U.S. treasury bond index is still bearish with its multi-month descending broadening wedge pattern in progress. The broad stock market is projected to be in a short-term bullish time-window until 11/15/2018.

 
Table of Contents


 

 

Broad Market in Short-Term Bullish Time-Window


 

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 513 on Friday 10/26/2018 (up from 217 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 the Leading Wave Index (LWX), the broad stock market is projected to be in a short-term bullish time-window until 11/15/2018 (see the second table below).

 

The Leading Wave Index (LWX) Indicator in Last Four Weeks (Actual)

 

The Leading Wave Index (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: trough
Date of Next Cycle High: 11/15/2018
Broad Market Instability Index (BIX): 513, above the panic threshold (bearish)
Momentum Indicator: negative (bearish)

 


 
Sector Performance Ranking with Utilities 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 Utilities, Healthcare, and Real Estate. Underperforming sectors are Home Construction , Oil Equipment, and Semiconductors. Last week almost all sectors went down except Consumer Goods and Home Construction sectors on weekly basis.
 

 

 
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.

Based on recent market movement, intermediate upward wave (5) is now downgraded back to intermediate corrective wave (4). This intermediate corrective wave extends the correction started from the early this year, and it has a ABC sub-wave sequence. The downward move this month is sub-wave C which is the last wave of intermediate corrective wave (4). There is a bearish sign that current downward sub-wave C broke below the lower boundary of a 3-year bullish uptrend channel.

 

The S&P 500 index on daily chart below formed a 4-month rising wedge pattern. Downward sub-wave C of intermediate corrective wave (4) has broken below the lower boundary of the rising wedge, and this downward sub-wave C is gong to have a 1-2-3-4-5 mini-wave sequence. Now it is likely near the end of downward mini-wave 5 of the sequence.

 


 
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. Now it is in intermediate corrective wave (4) which has a ABC sub-wave sequence. Currently is in downward sub-wave C. The index formed a 18-month head-and-shoulders top pattern. Recently the price broke below the neckline of the pattern. It is bearish with a downside price target projected at 11000. Last week the price was very close to this price target, and downward sub-wave C is near the end.

 


 
India Bombay Index Broke Below 5.5-Month Ascending Broadening Wedge Pattern


 

The India Bombay Stock Exchange 30 Sensex index formed a 5.5-month ascending broadening wedge pattern which typically has a bearish indication. The price has broken below the lower boundary of the wedge. It is bearish with a downside price target projected at 32800.

 


 
Shanghai Composite Index: Intermediate-Term Pictures


 

The Shanghai Stock Exchange Composite index is forming a 10-month falling wedge pattern. It is bearish as long as the price is below the upper boundary of the wedge.

 

In the following weekly chart, the Shanghai Stock Exchange Composite index formed a 3.5-year descending triangle pattern. The price breached the lower boundary of the triangle. It is bearish with a downside price target projected at 2000 as long as the price is below the lower boundary of the triangle.

 


 
US Treasury Bond Forming 8.5-Month Descending Broadening Wedge


 

The 30-year U.S. treasury bond index is forming a 8.5-month descending broadening wedge pattern. It is bearish and volatile for the index.

 


 
US Dollar in 5-Month Ascending Broadening Wedge Pattern


 

The U.S. dollar index is forming a 5-month ascending broadening wedge pattern. It is neutral as long as the price stays above the lower boundary of the wedge.

 


 
Gold in 3-Month Trading Range


 

The gold index is forming a 3-month horizontal trading range between 1185 and 1235. It is neutral before the price breaks out from the range.

 

 
Silver Forming 2.5-Month Trading Range


 

The silver index is forming a 2.5-month trading range between 14.1 and 14.9. It is neutral with the price staying inside the range.

 

 
Crude Oil Forming 1-Year Ascending Broadening Wedge Pattern


 

The crude oil index is forming a 1-year ascending broadening wedge. It is bullish as long as the price stays above the lower boundary of the wedge.

 


 
Asset Class Performance Ranking with US Dollar 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 the US dollar is outperforming and Equity is underperforming.