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01/17/2021 – Market Update

January 19, 2021 Leave a comment

 

US Stock Market is Topping

 

The stock market closed negative last week with very low volatility and momentum. The S&P 500 index is still in stretching the final upward leg of its multi-month butterfly for a potential top reversal. Oil Equipment, Semiconductors, and Consumer Goods sectors ranked as the top three sectors with mostly strong technical strengths. The US dollar gained momentum after it broke upward from a 2-month falling wedge pattern. The 30-year US treasury bond remained bearish with a downtrend channel pattern. The broad stock market is projected to be in a short-term neutral time-window until 1/22/2021.

 
Table of Contents


 

 

Broad Market in Short-Term Neutral Time-Window


 

The Broad Market Instability Index (BIX), measured from over 8000 U.S. stocks, closed at 4 on Friday 1/15/2021 (up from 1 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 1/22/2021.

 

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: 2/8/2021
Broad Market Instability Index (BIX): 4, 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, Utilities, and Real Estate.

 

 

 
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 4-month butterfly pattern which is a reversal pattern composed of four legs marked X-A, A-B, B-C and C-D. This pattern suggests that the stock market is heading for a major bearish reversal. 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 over 1.6 extension which is at the high end of the target range. Watch out for a market top.

 


 
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 formed a 6-month horizontal trading range between 3200 and 3450. The price has broken above the upper boundary of the range. It is bullish with an upside price target projected at 3750.

 

In the following weekly chart, the Shanghai Stock Exchange Composite index is forming a 1.5-year rising wedge pattern. It is bullish as long as the price is above the lower boundary of the wedge.

 


 
US Treasury Bond in 6-Month Downtrend Channel Pattern


 

The 30-year U.S. treasury bond index is forming a 6-month downtrend channel pattern. It is bearish before the price breaks above the upper boundary of the channel.

 


 
US Dollar Broke out from 2-Month falling wedge Pattern


 

The U.S. dollar index formed a 2-month falling wedge pattern. The price has broken the upper boundary of the wedge. It is bullish with an upside price target projected at 92.

 


 
Gold in 7-Month Symmetrical Triangle Pattern


 

The gold index is forming a 7-month symmetrical triangle pattern. It is neutral before the price breaks out from the triangle.

 

 
Silver in 5-Month Descending Triangle Pattern


 

The silver index is forming a 5-month descending triangle pattern. It is neutral before the price breaks out from the triangle.

 

 
Crude Oil in 2.5-Month Rising Wedge Pattern


 

The crude oil index is forming a 2.5-month rising wedge pattern. It is bullish as long as the price stays above the lower boundary of the wedge.

 


 
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 treasury bond is underperforming.