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03/31/2019 – Market Update

April 1, 2019 Leave a comment

 

Be Cautious about the Stock Market Now

 

The S&P 500 index has been back and forth testing the 2820 level which is a major resistance over months. If the price breaks above this resistance level, the index may shoot up to 2925 quickly. However, the technical analysis based on both Elliott Waves and chart patterns suggests a new bear market near for stocks. Precious metals and utilities continued being top outperforming sectors. The broad stock market is projected to be in a short-term bearish time-window until 4/8/2019.

 
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 24 on Friday 3/29/2019 (down from 101 the previous week) which is below the panic threshold level of 42 and indicates a bullish market. The Wilshire 5000 index is above the 89-day exponential moving average, and the momentum is slightly positive. 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 4/8/2019 (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: downward
Date of Next Cycle Low: 4/8/2019
Broad Market Instability Index (BIX): 24, below the panic threshold (bullish)
Momentum Indicator: slightly positive (neutral)

 

 
Sector Performance Ranking with Precious Metals 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 Precious Metals, Real Estate, and Utilities. Underperforming sectors are Oil Equipment, Energy, and Banks.

 

 

 
S&P 500 Index in Primary Downward Wave A


 

The Federal Reserve left its policy rate unchanged and cut growth forecast just recently. I read it as a bearish sign to the stock market, and it alerts me to review the big picture of the market.

The historic data from last 25 years indicate there is about 90% of chance for the S&P 500 index in a bear market when its monthly MACD histogram stayed in negative territory. The monthly chart of the S&P 500 index below shows a correspondence with negative MACD histograms for last major bear markets and major corrections (light red zones). Since last October, the monthly MACD histogram has been in negative territory again. This is a big warning sign that a new bear market has already started stealthily.

We should remember this: Bear markets are born from excessive euphoria, grow on deteriorating economics, and mature on recession.

 

As shown in the weekly chart below, since early 2016 the SPX has been in primary impulse wave [5] which is the last upward wave of a multi-year primary five-wave sequence started from 2009. This fifth primary upward wave developed an intermediate (1)(2)(3)(4)(5) five-wave sequence. Corresponding to the monthly MACD chart above, both intermediate upward wave (5) and primary upward wave [5] should end in last October, and primary corrective wave [A][B][C] sequence started right after.

Currently the SPX is in primary corrective wave [A] which is the first primary downward wave of the primary corrective wave [A][B][C] sequence. In downward wave [A] of a bear market, the fundamental news is usually still positive. Most people see the drop as a correction in a still-active bull market.

This downward [A] wave is going to have an intermediate (1)(2)(3)(4)(5) five-wave sequence progressively to the downside. So far intermediate (1) and (2) have developed. Now it is near the end of upward intermediate (2), and downward intermediate (3) will be the next.

 

The S&P 500 index on daily chart below formed a 5-month descending broadening triangle pattern. The upper boundary of the triangle is the 2820 level which has been a major resistance over four months. Last two weeks the price were testing the resistance level back and forth. If the price breaks above this resistance level, the index may shoot up to 2925 quickly. However, the break even failure rate is high for this chart pattern, and it is not a chart pattern you well want to curl up with at night and dream about unless you like losing money, according to Thomas Bulkowski. Once intermediate upward (2) ends, downward intermediate (3) starts and will be likely to go down beyond intermediate (1).

 


 
German DAX Index: Elliott Wave


 

In the following weekly chart, since early 2018 the German DAX index has been in primary downward wave [A] which will have an intermediate (1)(2)(3)(4)(5) five-wave sequence progressively to the downside. So far intermediate (1) and (2) have developed. Now it is near the end of upward intermediate (2), and downward intermediate (3) will be likely to go down beyond intermediate (1).

 


 
India Bombay Index above 3-Month Ascending Triangle Pattern


 

The India Bombay Stock Exchange 30 Sensex index formed a 3-month ascending triangle pattern. Recently the price has broken above the upper boundary of the triangle and it has been bullish with an upside price target projected at 38700. This price target was reached last week.

 


 
Shanghai Composite Index: Intermediate-Term Pictures


 

The Shanghai Stock Exchange Composite index is forming a 4-week ascending triangle pattern. This pattern is very bullish and the price is waiting for a breakout.

 

In the following weekly chart, the Shanghai Stock Exchange Composite index formed a 4-year falling wedge pattern. Recently the price has broken above the upper boundary of the wedge. It is bullish with an upside price target projected at 3450 as long as the price stays above the upper boundary of the wedge.

 


 
US Treasury Bond Broke above 2.5-Month Trading Range


 

The 30-year U.S. treasury bond index formed a 2.5-month trading range between 144 and 146.5. The price has broken above the upper boundary of the range. It is bullish with an upside price target projected at 153.5.

 


 
US Dollar Forming 11-Month Rising Wedge Pattern


 

The U.S. dollar index is forming a 11-month rising wedge pattern. It is neutral before the price breaks out from the pattern.

 


 
Gold Forming 2-Month Triangle Pattern


 

The gold index is forming a 2-month triangle pattern. It is neutral before the price breaks out from the pattern.

 

 
Silver Forming 3-Month Falling Wedge Pattern


 

The silver index is forming a 3-month falling wedge pattern. It is neutral before the price breaks out from the pattern.

 

 
Crude Oil Forming 3-Month Rising Wedge Pattern


 

The crude oil index is forming a 3-month rising wedge pattern. It is neutral before the price breaks out from the wedge.

 


 
Asset Class Performance Ranking with US Treasury Bond 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 treasury bond is outperforming and Crude Oil is underperforming.