12/20/2020 – Market Update
A Bearish Reversal Pattern Builds Up on S&P 500 Index
The stock market momentum was fading while readings of our Broad Market Instability Index remained extremely low last week. The S&P 500 index is in the late part of current primary upward wave, and it is now forming a bearish multi-month butterfly pattern suggesting a major top reversal is coming. Oil Equipment, Semiconductors, and Consumer Goods sectors ranked as the top three sectors with mostly strong technical strengths. The US dollar and 30-year US treasury bond remained in their bearish downward patterns. Crude oil reached our upside price target last week. The broad stock market is projected to be in a short-term neutral time-window until 12/30/2020.
Table of Contents
- Broad Market in Short-Term Neutral Time-Window
- Sector Performance Ranking with Oil Equipment Leading
- S&P 500 Index in Primary Upward Wave X
- German DAX Index: Elliott Wave
- India Bombay Index in 3-month Rising Wedge Pattern
- Shanghai Composite Index: Intermediate-Term Pictures
- US Treasury Bond in 5-Month Downtrend Channel Pattern
- US Dollar in 8-week falling wedge Pattern
- Gold in 4.5-Month Downtrend Channel Pattern
- Crude Oil Broke above 2.5-Month symmetrical Triangle Pattern
- Asset Class Performance Ranking with Equity Leading
Broad Market in Short-Term Neutral Time-Window
The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 1 on Friday 12/18/2020 (down from 4 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 negative. Based on the forecast of the Leading Wave Index (LWX), the broad stock market is projected to be in a short-term neutral time-window until 12/30/2020.
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: 12/30/2020
Broad Market Instability Index (BIX): 1, below the panic threshold (bullish)
Momentum Indicator: slightly negative (neutral)
Sector Performance Ranking with Oil Equipment 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 Oil Equipment, Semiconductors, and Consumer Goods. Underperforming sectors are Precious Metals, Real Estate, and Utilities.
S&P 500 Index in Primary Upward Wave X
As shown in the weekly chart below, since October of 2018, the SPX has been in a primary corrective wave [W]–[X]–[Y] sequence. Primary flat wave [W] ended late March, and primary upward wave [X] has started. Primary upward wave [X] is going to have intermediate (a)–(b)–(c) three-wave sequence. Currently it is in intermediate upward wave (c) which is the last intermediate upward wave before the next primary downward wave [Y] starts.
The S&P 500 index on daily chart is forming a 3.5-month butterfly pattern which is a reversal pattern composed of four legs marked X-A, A-B, B-C and C-D. It is a bearish pattern suggesting a significant decline ahead. The C-D leg is the final and most important part of the pattern. The C-D leg very often extends forming a 1.27 or 1.618 extension of the A-B leg. Currently the C-D leg on the SPX chart has 1.383 extension which is in the target range. The final D point will be confirmed by a reversal bar on the daily chart.
German DAX Index: Elliott Wave
In the following weekly chart, since early March the German DAX index has been in primary upward wave [X] which will have an intermediate (a)–(b)–(c) three-wave sequence. Currently it is in intermediate upward wave (c).
India Bombay Index in 3-month Rising Wedge Pattern
The India Bombay Stock Exchange 30 Sensex index is forming a 3-month rising wedge pattern. It is bullish as long as the price stays above the lower boundary of the wedge.
Shanghai Composite Index: Intermediate-Term Pictures
The Shanghai Stock Exchange Composite index is forming a 5.5-month horizontal trading range between 3200 and 3450. It is neutral before the price breaks out from the range.
In the following weekly chart, the Shanghai Stock Exchange Composite index formed a 1.5-year symmetrical triangle pattern. The price has broken above the upper boundary of the triangle with an upside price target projected at 3425. This price target has been reached. Now it is in a consolidation.
US Treasury Bond in 5-Month Downtrend Channel Pattern
The 30-year U.S. treasury bond index is forming a 5-month downtrend channel pattern. It is bearish before the price breaks above the upper boundary of the channel.
US Dollar in 8-Week Falling Wedge Pattern
The U.S. dollar index is forming a 8-week falling wedge pattern. It is bearish before the price breaks above the upper boundary of the wedge.
Gold in 4.5-Month Downtrend Channel Pattern
The gold index is forming a 4.5-month downtrend channel pattern. It is bearish as long as the price is below the upper boundary of the channel.
Silver Broke above 4.5-Month Descending Triangle Pattern
The silver index formed a 4.5-month descending triangle pattern. The price broke above the upper boundary of the triangle. It is bullish with an upside price target projected at 28.6.
Crude Oil Broke above 2.5-Month symmetrical Triangle Pattern
The crude oil index formed a 2.5-month symmetrical triangle pattern. The price has broken above the upper boundary. It is bullish with an upside price target projected at 48. This price target was reached last week.
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 the US dollar is underperforming.
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