Friday, May 29, 2015

MTU Weekend Ed. - Monthly Outlook Update (5/29/15 close)

Stocks, Bonds, USD, Gold - key intermediate term scenarios to watch


SP500 rose 1.05% in May (c/c) and delivered a fresh all time high at 2134.7. Meanwhile, a six-month divergence between the Dow (which has been going up) and the Dow Transports (which has been going down) worsened meaningfully in May (See Dow Theory Nonconfirmation (5/22/15)). While this Dow-Theory non-confirmation helps to build a case for the May high in SP500 being potentially a meaningful top (Chart s1), other observations suggest that chances for a new high (Chart s2) are still favorable.

Short of being a leading diagonal decline from the May high, the decline in SP500 so far appears corrective (Chart s3).  The near term decline, however, has the potential to extend somewhat according to the wave structure and as the Dow has already made a lower low.

While the divergence between the Dow and the Dow Transports has accelerated in May, the Dow Transports may be wrapping up a fourth wave pullback (Chart s4) in the form of a downward flat (Chart s5). If so, one can expect a fifth wave advance.

At its May high, the Nasdaq Composite is only 0.25% shy of its Y2K high (Chart s6). Odds appear to favor a new all-time high in the Nasdaq Composite.

Notably, the Decennial Cycle (Chart s7) and the Presidential Cycle (Chart s8) are particularly bullish for the first half of June.

10-year US Treasury yield made a higher high around 2.34% and retreated toward potential support (Chart b1).  In addition, the pullback from the 2.34% area is likely tracing out a downward flat (Chart b2).  Under this interpretation, one can expect a wave (iii) of [iii] advance in long term interest rates.

The red scenario in Chart b1 tracks a potential expanding EDT rally in bonds if support is meaningfully breached.


The USD index pulled back the form of a flat (Chart $1) and bounced off potential support (Chart $2, green wave 4), making another attempt at its long term resistance (Chart $3). 

 However, the green wave 4 has lasted two bars (Chart $2) and could protract in time as well as in price to work off its overbought condition.   Under this interpretation, the recent rebound in the dollar is the blue wave X or the red wave 2 if the long term resistance holds.  See Chart $1.  

Gold price is fighting its down trend since the 2011 top, despite the fact that the 2015 low represents a higher low with respect to the 2014 low (Chart g1). The red and green scenarios highlighted in Chart g1 are tracking well to the downside.

As long as the 2015 low holds, Chart 2g highlights the potential for near term (red) or even intermediate term (black) strength in Gold prices.