The U.S. stock market finished the month of September with its best performance in 71 years, i.e. since September 1939. The Dow Jones Wilshire 5000 index, as a benchmark of the total equity market, has gone up 10% since September 1 and all my analyses indicate that the market could see continued strength until at least sometime after the November elections. www.munKNEE.com;
By: Nu Yu, Ph.D.
The Benchmark Wilshire 5000 Index
The Wilshire 5000 index has recently formed a pattern similar to either an Inverted Roof or a Complex Head-and-Shoulder Bottom. The neckline of this pattern at the key resistance level of 11,765 was broken and now it serves as a key support line suggesting that the midterm election year bottom could be behind us and the market could have a 10% measured upward move from the level of the neckline to almost 13,000.
a) The Leading Wave Index is Extremely Bullish
My proprietary U.S. equity market Leading Wave Index indicator (LWX) — where >+1 indicates bullish; < -1 indicates bearish; between +1 and -1 indicates neutral — has been bullish since September 1 with a current reading of 2.1. Based on the forecast of the LWX indicator, the bullish time-window for the market extends to early November which coincides with the time of the midterm elections. This bullish projection of the LWX is in sharp contrast to the popular bearish and scary opinions of the “Head-and-Shoulder”, “Hindenburg Omen“, and “September-October-Bearish-Season” concepts. My analysis shows that the Trend Indicator is UP and the Momentum Indicator is POSITIVE both of which are VERY bullish for the stock market.
b) The Broad Market Volatility Is Extremely Low
The BIX (Broad Market Volatility) closed most recently at 3 which is dramatically below the panic threshold level of 47 and indicates that the current market is VERY bullish.
U.S. Stock Market Index and Sector Performances
The following are the percentage changes of the major market indexes and the top and bottom sectors measured against the 89-day exponential moving average (EMA89).
a) The Dow Jones Wilshire 5000 is up 3.90% (market benchmark)
b) The NASDAQ 100 is up 5.66% (outperforming the market)
c) The S&P 500 is up 3.45% (underperforming the market).
d) Outperforming sectors are:
i) Internet (up 9.88%),
ii) Precious Metals (up 9.69%),
iii) Telecommunication (up 8.50%) and
iv) Materials (up 8.0%).
c) Underperforming sectors are:
i) Banks (down 2.53%),
ii) Financials (up 0.39%), and
iii) Semiconductors (up 1.58%).
The Chinese Market is Waiting for an Explosive Kick-off from 2650
Since the bearish dead cross in the early part of this year, the Shanghai Stock Exchange Composite Index has been in a downtrend by staying under the 17-week moving average (equivalent to 89-day moving average). It is currently in a 14-month downtrend channel, and in the choppy zone of the channel between 2250 and 3000. However, if the index successfully crosses over both of the 17-week moving average and the median line of the 14-month downtrend channel around 2650, it should be characterized as a potential bullish Golden Cross. Currently the index is still testing the 17-week moving average. This is the tenth week for the index around this critical level of 2650. An explosive kick-off is still expected.
An important long-term “Three Peaks and Domed House” pattern is emerging for the Shanghai index. It could be very significant to the Chinese stock market in the next one or two years. I will discuss it in next week’s market review.