Friday, October 30, 2015

Monthly Outlook Update (10/30/15)

Stocks, Bonds, USD, Gold - key intermediate term scenarios to watch
The recovery in SP500 off its double bottom has been very strong with only shallow pullbacks (Chart S1) and the Nasdaq100 is practically at new recovery highs (Chart S2).

Despite this bullishness, the disparity along the market-cap dimension is remarkable (Chart S3) and The 9% and the 90% (10/23/15)), raising the possibility that this recovery is of a corrective nature. If so, the blue and red paths in Chart S4 are potential candidates for what's happening at a larger degree.

Long term, the 10-year US Treasury yield index may be forming a 4-year head-and-shoulders pattern (Chart B1, gray neckline). Under this interpretation, the right-shoulder formation is in progress at the moment.

Near term, the yield index has also formed a 1-year head-and-shoulders pattern.  This pattern is potentially failing as yields have bounced off trend channel support and but is approaching resistance.  See Chart B2.

The 5-year and 1-year head-and-shoulders patterns resemble each other.  We would not be surprised if both fail. However, near-zero 10-year yields would be the consequence if these HS patterns reach their projected target!

The USD index formed a higher low over the past month and has advanced smartly since then. At the same time, it has been capped by the downward trendline on the monthly chart and is yet to achieve a higher high (Chart $1).

As such, it is not clear if the green wave 4 in Chart $1 is complete. Near term, two potential bearish scenarios are worth mentioning (Chart $2).  The first scenario is a complex wave (X)-blue and the second a wave [ii](or B)-red following a leading diagonal triangle wave [i](or A)-red.

The 2015 low in Gold is a candidate for a bottom in Gold price (Chart G1, green C). While it is possible to interpret the round as a series of first and second waves (Chart G2, green)  or as an impulse wave with an oversized wave four triangle (Chart G2, blue), price action has not been convincingly impulsive.

The red 5 and blue C in Chart G1 remain strong candidates for the bottom in Gold prices. The lower blue trend-line offers potential support as well as a capitulation mark.