Saturday, October 29, 2016

MTU Weekend Ed. - Monthly Outlook Update (10/28/16 close)

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

Price actions in SPX over the past two-years have failed to resolve the ambiguity whether a fourth wave pullback (Chart S1-red/blue) is still completing or a fifth wave is already in progress (Chart S1-green).

For the near term, a probe for the gray breakout line in Chart S1 and the 200DMA around 2075 for potential support looks probable. A successful probe would complete a potential 7-wave corrective pullback shown in Chart S2.

Odds would favor the bullish wave 5 if SPX can stay above the gray breakout line. Note that seasonality is very bullish for the rest of the year. Chart S3 offers an average 10% upswing in Q4 in year-6 of the decennial pattern. A decisive breach of the gray line would invite a deeper retrace toward many unfilled upward gaps and perhaps with similar potential of the decennial pattern to the downside (inversion).

With October's 30bp rise, the UST-10Y yield index has taken on the shape of a diagonal triangle since its July low (Chart B1) and is approaching price and pattern resistance (Chart B2). A retrace around current levels looks probable. A new low in yields, if materialized, would complete yet another contracting EDT (Chart B3).

The thick green line has served as a strong support for the USD index since its 2015 high (Chart $1). The current rebound is either the green wave 5 or another retrace to the upper end of its two-year range. Note that the USD index is approaching price and pattern resistance. Unless a convincing higher high is made (by a small-degree 3rd wave), a reversal looks probable (Chart $2).

At its 2016 rebound high of 1377.50, Gold either completed a bearish upward flat (or wave [1] of its wave C-up to a lesser extent) as indicated by Chart G1-red, or the initial upswing (wave A-up or wave 1-up to a lesser extent) as indicated by Chart G1-blue. In the near term, a probe of the gray "base channel" line around 1150 for potential support appears probable, with potential for more to new lows (RED) or a rebound to challenge the upper gray "base channel" line (BLUE)