Saturday, July 6, 2013

MTU Weekend Ed. - Stocks and Bonds (7/5/13)

The upswing from the June low in stocks saw a potential upward breakout after a week-long consolidation (Chart 1). For the near term, a potential inverse head-and-shoulders pattern points to a target area around 1650 in SPX, if SPX can break away from near term resistance.  It is prudent to reassess around the target area  (see below).

As discussed in recent weeks, the top counts appear to be
[1] a wave (4) pullback with respect to the 2011 low - a new high with a few index points in RUT appears to support this scenario.
[2] a deeper wave (D) pullback within a diagonal triangle since the 2009 low - this scenario will likely surprise the majority.

See Monthly Outlook Update (6/28/13) for discussions. Chart 2 (blue) and Chart 3 offer an update with the latest data. The major bearish scenario likely suggests (and requires) a leading diagonal triangle (Chart 2, red).

The 25+ bp uptick in 10Y yields thanks to Friday's jobs report presents an opportunity to tweak our intermediate term count from the 2012 low in yields (Chart 4), as well as the long term count (Chart 5).

Tweaks of the long term count are for better form, now with an EDT ended at the 2012 low (Chart 5 blue) or a lower degree EDT still to be completed with a wave E thrusting down in the foreseeable future (Chart 5 red). 

These long term counts survive even with another moderate down-and-up subdivision according to Chart 4. Note also that this past week's sell-off has put 10-year yields squarely at trendline resistance in Chart 5.