Stocks, Bonds, USD, Gold - key intermediate term scenarios to watch
As discussed previously, despite the swift rise in SPX since its Feb low, it's easier to count the upswing as a corrective wave (Chart S2 and S3).
If the upswing is an impulse wave, the April high may only be its third wave (Chart S4 green).
The 10Y US Treasury yield index retested the overhead neckline (of a small head-and-shoulders pattern) for a second time and so far has been unable to invalidate the neckline (Chart B1). Our outlook in Monthly Outlook Update (4/1/16) remains applicable.
A large H&S pattern has already lasted about 4 years and targets a new cycle low in long term rates if fully developed. (Chart B2).
Do bond investors know something stock investors have underappreciated or is the bond rally just a manifestation of cheap money?
The USD index continued to decline after some consolidation this past month. The entire drop from its March high looks like a wedge (Chart $1), and the consolidation since its 2015 high looks like a WXY structure (Chart $2). USD strength is therefore likely to surface in Q2.
After having successfully retested the green wedge support around 1200, Gold rose to 1300 in April and is now poised to take out its 2015 high (Chart G1). We are tracking the downswing from 2011 high with two key scenarios:
[Green] The 2011-2015 down swing most likely ended at the 1045 low. The 2016 rise is wave 1 or A of a new upswing.
[Red] A wave A decline(2011 to 2014) ended at the 2014 low around 1130. An upward expanded flat followed with the 2016 rise as its terminal wave [c].
Near term, Gold is likely wrapping up a fifth wave off the 1045 low (Chart G2-blue) and a retrace to the 1150 area is probable, unless upcoming momentum supports the more bullish interpretation of a wave 3/C (Chart G2-green).