Friday, December 17, 2010

MTU Weekend Ed - Stocks and Bonds (12/17/10 Close)

Hope Rally Ends Here (Dec. 2010 attempt)(12/15/10) highlighted one of the logical point/area for a top given its assumptions. Remarkably, the proposed top in the Dow, the proposed orthodox top in Wilshire 5000 and the nominal high in SP500 have so far remained intact. It should be noted that the proposed orthodox high in SP500 did not survive the call and Nasdaq indexes have managed another nominal high.

Assuming Nasdaq indexes is diverging from the broader indexes as they have done in the past, in hindsight, we may just have to slightly adjust the proposed squiggle count of SP500 and leave the proposed squiggle count of the Dow alone to maintain the call for a top. See Chart 1 and Chart 2.

if minor wave 5 or minute wave [i] of minor wave C has topped ...

At the same time, given the lack of an obvious impulsive decline so far and the fresh highs in the Nasdaq indexes, we must be mindful of the additional possibilities (i.e. the other logical areas for a top). Assuming no further extension and that we are indeed dealing with minor wave 5 since the July low, the other logical spot for a high/top should be below 1261 in SP500 and more likely in the 1250 area (Chart 3). This count has a slightly different starting point for minor wave 5 and marks the recent nominal high as minute wave [iii] of minor wave 5. Note that minute wave [iii] is shorter than minute wave [i] in Chart 3, thus limiting the upside potential of minute wave [v] if minor wave 5 and thus the upside potential of the top. The same count in Chart 3 also maps into the Dow well.

if minor wave 5 or minute wave [i] of minor wave C has NOT topped ...

The bear market in bonds (which most likely had started in late 2008) has most likely and apparently resumed since the official QE2 announcement in 10-year notes and a bit earlier in 30-year bonds.

Current counts mark the recent high in yields and low in prices as either the end of the third wave of an initial five wave decline in bond prices or the end of the entire initial five wave decline in bond prices (see Chart 4 to Chart 7). The difference is the amount of retracement before further sell-offs.

UST 30-year bond price

UST 10-year note price