Saturday, December 29, 2012

MTU Weekend Ed. - 2013 Outlook (12/28/12 close)

Happy New Year!

Stocks -
The final upswing of the Hope Rally is likely in progress (Chart 1). The fiscal-cliff related decline is likely a temporary pullback. The sell-off has now pushed SP500 to the proposed target area around 1395 based on our analysis of the potential fractal (Chart 2). See Cliff (12/21/12) for more discussions on the proposed fractal. See Market Timing Update (12/28/12) for near term tracking counts and squiggles.

Bonds -
U.S. 10Y Treasury note yield is wrapping up a potential zigzag decline which has lasted more than three decades (Chart 3).  The proposed wave [C] of the decline in yield is likely an ending diagonal triangle as indicated in Chart 3 and analyzed in Chart 4.

It is anyone's guess when and where the proposed EDT would end.  As long as 10Y yield finds its low above 46bp (0.46%), the proposed EDT survives.  In reality, the recent low around 1.39% is as good a low as others, and around 0.97% is a decent spot for an overthrow as well as support.

The USD index is likely to be range bound for some time, likely as part of a larger triangle (Chart 5).  A piece of supporting evidence is that the recent advance from the 2011 low counts better as a three-wave structure than a five-wave one (Chart 6).  Whether the proposed triangle is bearish (Chart 5, blue) or bullish (Chart 5, green) for the green back remains to be seen - the 2012 high and 2011 low are thus key pivots.

Gold -
Gold is likely in a wave [4] decline off its low around the turn of the century (Chart 7).  Once wave [4] concludes, wave [5] should push gold to a new high.

Since the proposed wave [2] sell-off was deep, the current wave [4] correction is likely sideways based on wave structure's tendency to alternate. Chart 8 presents our primary wave count on gold off its recent major low, the 2008 financial crisis low.