Stocks, Bonds, Dollar, Gold
SP500 squeezed out an all time high (1.2% above the August top) in September when the Fed postponed the anticipated tapering of asset purchases, but is now 2.5% off the high on budget impasse concerns.
While the September high in stocks has the potential to be a major top that threatens the August low for the near term, benchmark indexes have failed to decline in sync and confirm each other. See Chart 1 to Chart 2. One can spot corrective structures and positive technical divergences with relative ease – a potential near term bullish wedge in SP500, a triangle in Nasdaq100 and possibly in SP400, and a running flat in Russel2000. While it should be noted that failure of these potentially bullish patterns are bearish, it appears that odds favor a new high before the August low should be breached.
Our near term assessment fits well into the following four larger degree count, which are key scenarios to monitor.
[1- bearish complex double three] We track the advance since the 2009 low in SP500 as a double three followed by a triple three, a [W]-[X]-[Y] cycle wave b-up (Chart 5). The September high or the coming high is the final wave (c) of [Y]. Near term dynamics as discussed above suggest one more high which likely delivers a typical overthrow - it's nevertheless prudent to be vigilant for signs of a truncated advance.
[2- bearish zigzag] We track the advance since the 2009 low in SP500 as a simple 5-3-5 zigzag (Chart 6-red). The September high and subsequent retrace raised the possibility of a skewed-triangle final wave (4)-down, which also allowed for waves (4) and (5) to be more proportional to waves (1) and (2) in duration.
Under this interpretation, SP500 is wrapping up wave E-down of the proposed wave (4)-down. The subsequent wave (5)-up is likely to offer more upside potential than scenario  discussed above.
Alternatively, one can count a running-flat-like complex wave (4) and expect an extended wave (5) as in Chart 6-green. The upside implications of the two counts are similar.
[3- bullish regular five] We track the advance since the 2009 low in SP500 as a regular five wave advance (Chart 7-green). Recent price dynamics allow us to entertain the possibility of an ending diagonal triangle wave 5-up of (3)-up.
Under this interpretation, the current pullback is wave [iv]-down of 5-up of (3)-up, which fits well with near term wave structures in Nasdaq100 and Russell2000.
[4- bullish ending diagonal triangle] We track the advance since the 2009 low in SP500 as a large ending diagonal triangle fifth wave (Chart 7-red). Based on the wave count in Chart 5 above, the September high or the pending high marks the end of wave [C]-up and the subsequent wave [D]-down should bring SP500 to below 1400 to overlap with wave [A]-up. The final wave [E]-up should push stocks to new highs.
Bonds rallied decisively in September on lack of any tapering of the existing stimulative monetary policy (Chart 8). Technically, 10-year UST yields have respected a long term prior support area which has turned resistance as discussed in the last Monthly Outlook (Chart 9).
The current rally in bonds or drop in yields tracks
 a 4th wave correction if the bull market in bonds ended in 2012 (Chart 8 green, Chart 9 green) or
 wave E of a final ending diagonal triangle which should push long-term rates to new lows (Chart 8 red, Chart 9 blue).
In either case, yields are now approaching our initial target. A short term backup is likely.
We anticipated near term weakness in USD in Monthly Outlook Update (8/30/12) and the market did not disappoint (compare Chart 10 below to this chart.)
Our long term count on the US Dollar index has not changed (Chart 11). Price actions are in line with our expectation that the USD index remains range bound for some time as indicated.
[blue] a potential ending diagonal triangle wave -up, with (B)-down
in progress and (C)-up, (D)-down and (E)-up yet to come. The proposed EDT could also be wave (1) of -up.
[blue-alt] a large ABC rebound with B-down in progress and C-up yet to come.
[red, green] a wave five-down in progress.