Sunday, October 4, 2015

MTU Weekend Ed. - Monthly Outlook Update (10/2/15 close)

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

SP500 likely concluded a potential flat-like structure from its May all-time-high to its September low (Chart S1 red).

Note that the decline into the September low in SP500 looks like an EDT (LDT if the September rebound completed a wave-X retrace, see Chart 1 blue), and several indexes made lower lows in September. Hence, the strength of the subsequent rebound is not surprising.

The gap around 2035 has a good chance of being filled (see Chart 1).  And at a larger degree, the September low presents a potential 4th wave low (Chart 2).

At the moment, the upswing from the September low can be counted as a bearish flat (Chart 3 red), which is consistent with the key near term bearish scenario outlined by the blue count in Chart 1. If this is the case,  another wave C downswing is necessary to conclude a double three structure from the May high.

Finally, stocks have not followed their long term cyclical tendencies in 2015 (Chart 4 and Chart 5).  If the market reverts to its average decennial cycle and presidential cycle trajectory for the rest of the year, Q4 would be meaningfully bullish.  If the deviation continues or even an inversion surfaces, Q4 would be quite bearish.  

Long term interest rates have experienced volatile swings as Fed expectations and macro data evolve. Chart B1 shows that 10Y yield has been trending up along the trend line connecting its 2012 and 2013 lows, but with large swings around that trend line. Friday's rally once again pushed 10Y yield to the lower end of the swing band. A rebound is likely if the "swing band" holds. Otherwise, the gray and blue trend lines in Chart B2 represent support at lower levels.

Since the USD index has delivered an inside bar for the month of September, and the rebound from its August low has been loosing momentum, the jury is still out regarding whether the pullback in USD is over (Chart $1).  Chart $2 presents key tracking scenarios.

Gold has been rebounding with momentum since its July low (Chart G1 blue), one of the potential level for a bottom (Chart G2, Green C). If the bottom is in, the lengthy pullback from the 2011 high can be counted as a double zig-zag (Chart G2, Green).

However,Friday's surge could also be (parts of) wave E of a small-scale bearish triangle (Chart G1, red). Wave E of a triangle is often event driven. Friday's jobs report fits the bill. This potential triangle formation could suggest that the proposed Green C is still ahead as the post-triangle thrust.

Since the rebound is yet to produce meaningful higher highs, we cannot invalidated other bearish scenarios: the red wave 5 and the blue wave C in Chart G2. Chart G3 offers a closer look.