Friday, September 9, 2011

MTU Weekend Ed. - Moment of Truth (9/9/11 Close)

A number of USD financial markets have arrived at important junctures - potential confirmation of an initial decline or the end of a correction in stocks, an upward post-triangle (likely terminal) thrust in long-term treasury bonds, a potential triangle in Gold before a terminal advance, and a potential turning point in the U.S. dollar awaiting confirmation or rejection. Another moment of truth is here.

*** Stocks
The thought process and analysis outlined in
* Taking Shape (9/2/11)
* Support and Resistance Matters (8/26/11)
* Wave Logic (8/19/11)
* Benchmark Low (8/12/11)
* Reading the "crash" (8/5/11)
point to the August 22nd low as a potential benchmark low. If the benchmark low is breached, odds strongly favor the sell-off to be the start of a larger correction or a resumption of the trend dating back to the 2007 high. A breach of the early August low likely offers confirmation. SPX closed less than 40 points above the proposed benchmark low this past Friday.

As long as the August 22nd low (and the early August low) hold, it's prudent not to discount the possibility that the recent crash is actually the end of a correction as outlined by the corrective counts.

Chart 1 shows a number of top tracking counts on SPX.
The two bullish counts suggest that the recent decline is a 2nd wave decline (blue) or wave C or wave E of a terminal triangle (green). In other words, the blue count has the correction completed at the August 22nd low and the green count calls for a low when the proposed triangle is complete.

The bearish counts are straight-forward. The market is in one of the following bearish waves.
(purple) wave (5)-down from the nominal high
(red-a) wave (3)-down or wave (C)-down from the orthodox top
(red-b) wave B-down of wave (2)-up or wave (B)-up from the orthodox top
One can sort out the wave degree later.

*** Bonds
Long term Treasury bonds have either finished or is finishing an upward post-triangle thrust. Chart 2 tracks the near term wave structure.

*** Gold
Regardless of the larger count, the decline from the recent high in Gold (as priced in USD) appears to be more corrective than impulsive. This implies another advance to new highs after the correction is complete.

As Chart 3 shows, the initial decline from the September high in the December contract is 7 waves. The run-up to the September high also counts well as a three. Thus, odds now favor a triangle (since the August high) or some complex three being in progress.

*** USD
The value of USD is also at a critical juncture, particularly with respect to the Euro. The moment of truth on whether the recent advance in the USD is the start of a bullish trend or a counter-trend ABC rebound is here.

Chart 4 updates the long term tracking count on the USD index. Where the long term low lands - whether the low is wave [B] purple or wave [2] blue - will help us determine the likely upside potential.

Chart 5 offers the near term bullish (blue) and bearish (red) counts on EUR.USD. Note that the decline in euro vs USD has reached equality (C=A) and the euro is near term oversold. For the euro to be in a wave 3 down, the selling needs to keep up and the 2011 low needs to be eventually taken out.