Saturday, July 2, 2016

MTU Weekend Ed, - Monthly Outlook Update (7/1/16 close)

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

SPX is now making a 5th breakout attempt to the upside since its May 2015 all-time-high (Chart S1). This is on balance bullish especially if a higher high develops in July.  A higher high here would be bullish particularly with the prospects of a potential wave blue (3)-up in Chart S2.

Stock investors are willing to ignore the long term impact of Brexit, given the full recovery of the Brexit crash in stocks. After all, there are currencies and bonds to bear any "permanent" repricing (see below). Along this line of observation, Chart S3 presents a monthly line chart (using only monthly closing quotes) of SPX, effectively ignoring the Brexit volatility. The line chart likely suggests a potential top of some degree may be developing. For example, Chart S4 tracks such a small and a larger degree topping process.

The 10Y US Treasury yield index is about to breach its 2012, the record low since the 1980s peak (Chart B1). Chart B2 tracks a potential head-and-shoulders target. Yields getting above the blue line would offers a hint of potential reversal.


The USD index bounced off a support area in May (the green and the blue lines in Chart $1) and made a higher rebound high following the Brexit vote in June (Chart $2), and ended June in the middle of its two-year range (Chart $1).

Near term, European currencies and international capital flow are even more likely to drive the USD index as the euro and the pound sterling together represent about 70% of the USD index. As such, the blue and red counts in Chart $2 track the bullish and bearish scenarios.

It is interesting to point out a potential long term head-and-shoulders pattern in GBPUSD (Chart $3). A successful move to the HS target would boost USD while an HS failure would be particularly bullish for GBP.

Gold made fresh recovery highs in June benefiting from the perception of a safe haven asset (Chart G1). However, the June advance appears wedge-like (Chart G2) and signs of negative divergence have been emerging. It's possible that a high is in or is approaching (as tracked by Chart G2).