Friday, January 29, 2016

MTU Weekend Ed. - Monthly Outlook Update (1/29/16 close)

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

The January plunge in stocks is the "downward thrust" we outlined in 2016 Outlook (1/1/16), although the downward thrust unexpectedly but moderately exceeded the August 2015 low in SPX.

U.S. stocks likely have completed the proposed fourth wave decline, either as wave [4] relative to the 2009 bottom (Chart S1) or wave (4) relative to the 2011 low (Chart S2).   

These two fourth wave at different degrees are relevant in the sense that:
(a) Support from wave [2] (Chart S1) is around 1720 and rising, which introduces the alternative possibility that the January low is wave (a) of [4] as marked.
(b) Support from wave (2) (Chart S2) is around 1865 and rising, which coincided with the January low.

A retest of the lows in early February remains probable but not required (Chart S3, Chart S4) .  Whether the retest is the bullish blue wave ii or the bearish red wave v,  the January low is likely to (roughly) hold since a typical red-wave-i-and-v-equality would suggest a failed red wave v. 

The U.S. 10-year Treasury Yield Index is retesting the gray "neck line" (Chart B1). If the H&S pattern, which we think is less likely at the moment, does play out, its target would be a near zero 10-year yield. In an environment where negative nominal policy rates are already a reality, it is prudent to keep an eye on this extreme scenario.

Our base case scenario is that bonds are overbought and long-term rates are likely rebound higher from here (Chart B2).

Our long term tracking of the USD index remain unchanged (Chart $1).  If the USD index does not break out to a higher high in early February (Chart $2 green), a retest of the 93 area is likely next (Chart $2 blue, red).

Gold is likely in the final subdivision of an EDT (Chart G1). The current upswing in Gold is likely wave (b)-up of wave [e]-down of the proposed EDT (Chart G2). If so, a final sell-off should deliver the overthrow to conclude this EDT. The bullish alternative of Gold having bottomed appears less likely than the main tracking count at the moment.