Last week the market volatility spiked up as readings of our Broad Market Instability Index climbed up to the highest level since February 2016. The S&P 500 index declined sharply after its price broke below a 4-month rising wedge pattern. Our Elliott wave analysis suggests that the SPX is in a short-term a-b-c corrective pattern with downward “wave a” near the end and upward “wave b” next before downward “wave c”. Both the German DAX index and Shanghai Composite index broke through their major technical support lines to the downside. Gold turned bullish as the price had an upward breakout from its 6-month descending broadening wedge pattern. The broad stock market is projected to be in a short-term bearish time-window until 10/18/2018.

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 487 on Friday 10/12/2018 (up from 150 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 very negative. Based on the forecast of the Leading Wave Index (LWX), the broad stock market is projected to be in a short-term bearish time-window until 10/18/2018 (see the second table below).

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:

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 Healthcare , Utilities, and Consumer Services. Underperforming sectors are Home Construction , Materials, and Semiconductors.
 

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.

Currently it is in intermediate upward wave (5) which is going to a 1–2–3–4–5 sub-wave sequence. Now it is in downward sub-wave 2 which is going to have a corrective a-b-c mini-wave sequence. The weekly chart below shows a long-term picture of the SPX staying in a 3-year bullish uptrend channel. The price is testing the lower boundary of the channel.

The S&P 500 index on daily chart below formed a 4-month rising wedge pattern which corresponds to upward sub-wave 1 of the 1–2–3–4–5 sub-wave sequence. Now downward sub-wave 2 has broken below the lower boundary of the rising wedge, and this sub-wave is gong to have a corrective a-b-c mini-wave sequence. Now downward mini-wave a is near the end, and upward mini-wave b will be the next for a bounce before downward mini-wave c.

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 intermediate upward wave (5) is downgraded to intermediate corrective wave (4) which has a a–b–c sub-wave sequence. Currently is in downward sub-wave c. The index formed a 18-month head-and-shoulders top pattern. Last week the price broke below the neckline of the pattern. It is bearish with a downside price target projected at 11000.

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.

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.

The 30-year U.S. treasury bond index is forming a 8-month descending broadening wedge pattern. It is bearish and volatile for the index.

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.

The gold index formed a 6-month descending broadening wedge pattern. The price broke above the upper boundary of the wedge last week. It is bullish with a price target projected at 1360.

The silver index is forming a 8-week trading range between 14.1 and 14.9. It is neutral with the price staying inside the range.

The crude oil index is forming a 11-month ascending broadening wedge. It is bullish as long as the price stays above the lower boundary of the wedge.

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 crude oil is outperforming and the US treasury bond is underperforming.