Friday, February 26, 2016

MTU Weekend Ed. - Monthly Outlook Update (2/26/16)

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

SP500 breached its January crash low in February but quickly and meaningfully rebounded. It is important to note that Dow30 and MidCap-SP400 did not suffer a lower low. Thus, the decline from the November high either ended or is missing a fifth wave decline (Chart S1).

With the short-term uncertainty being noted above, we discuss the intermediate term bullish and bearish scenarios, with the assumption that the upswing from the 2009 bottom is still incomplete.

[Bullish, Chart S2] Wave [4]-down from the nominal high completes at levels around the Feb low.

[Bearish, Chart S3] Wave [4]-down began in Q3 of 2014, tracing out a flat-light structure. wave (c)-down of the flat is a contracting or expanding EDT-like structure. This potential EDT is still missing wave d-up and e-down, with a final target potentially between 1650 and 1750.

The 10Y Treasury Yield completed the right shoulder of a head-and-shoulders pattern (Chart B1). The market is at a critical juncture right now. A fulfilled H&S patterns would likely mean current speculation of negative nominal interest rates has much merit, whereas a failed H&S would suggest a meaningfully higher interest rate environment is in sight.

If the USD index has not topped (Chart $1-green), its year-long consolidation may not be complete (Chart $2-blue, red).

The smart rise in Gold prices from the 2015-Q4 low strongly suggests that the entire decline (or the first major part of the decline) from the 2011 may be over following the completion of a contracting EDT (Chart G1-blue).

However, wave [e] of the proposed contracting EDT is either very compressed or uncharacteristically short (and lacks the final up-and-down subdivision).

This introduces another possibility that the rebound in Gold is only wave [d]-up of an expanding EDT (Chart G1-red). A higher high would eliminate this possibility.