Friday, January 31, 2014

MTU Weekend Ed. - Monthly Outlook Update (1/31/14 close)

Stocks, Bonds, USD, Gold

As discussed in It’s TIME (1/24/14), we are tracking a major top in stocks either already in place or to show up in the March-April timeframe based on price structures and time cycles. Odds favor a March-April high. January’s 3.56% sell-off in SP500 and this past week’s volatility have not changed the bigger picture. Chart 1 illustrates.

At the moment, stocks appear to have entered a volatile range in an effort to find at least a short term bottom. It’s probable that the low is already in or is just about to be in place. The structure of the sell-off resembles that of a flat, especially if several benchmark indexes are examined. Chart 2 illustrates.

Interestingly, the price structure and the associated market sentiment remind one of the 2011 pullback. The similarities helps one to pinpoint where the market is.   See Chart 3, which hints at strong upswings.

Bonds have rallied over the month from oversold levels and on weakness in stocks.

The 10Y Treasury yield is wrapping up a small-degree five-wave decline. Logical counts are either a six-month rally in bonds toward lower yields (Chart 4, red) or higher rates on the conclusion of a (running) flat in yields (Chart 4, green).

If stocks are ready to turn higher as discussed above, bond prices are likely to fall.

Despite the excitement in stocks, bonds, and EM currencies, USD is largely rangebound relative to other major currencies (Chart 5). The USD index looks bullish near term (Chart 5), but advances are likely to face long term resistance (Chart 6).

We observed a month ago that "Gold is bottoming. The next move is likely an advance towards 1400 to 1500."  Chart 7 and Chart 8 update. 

For the near term, gold is likely to experience price pressure as prices are approaching resistance. Near term outlook for stocks, bonds and the dollar is also less bullish for gold.