Stocks, bonds, commodities and USD index
The sharp reversals in USD/EUR and commodities (led by metals and energy) demand an update on long term counts in many asset classes. For the purpose of the present discussion, the notion of long term covers price actions since early 2009. For near term counts on stocks, please see Market Timing Update (5/6/11).
The primary count is that stocks are approaching the end of an x wave rebound from their lows during the financial crisis. The bullish alternative of a multi-year bull market remains a less likely scenario at the moment.
Chart 1 presents the top three tracking counts (blue, gray and red) within the context of an x-wave, as well as the very bullish green count. The differences among the blue, gray and red counts are their upside potential and the depth of the near term correction.
As long as SP500 is cushioned by the decade long resistance zone (Chart 2) from which SP500 finally broke out on its second attempt in recent months (see Breakout (4/29/11)), odds favor the more bullish corrective counts (i.e. red and gray).
Bonds (longer maturity US Treasuries)
The primary count is that long-dated US Treasuries are working to complete wave C of a second wave rally. Yields are expected to trend higher once the current phase of rally ends.
Chart 3 and Chart 4 present the primary count on 10-year note price and yield.
Chart 5 and Chart 6 present the primary count on 30-year bond price and yield. Please ignore the discrepancy in wave degrees between Chart 5 and Chart 6 for now.
The primary count on broad commodities, using the CRB index (or the CCI index) as a proxy, is a zigzag counter-trend rally since the 2009 low.
For the near term, the recent sell-off is likely a fourth wave (i.e. wave (4)-down of [C]-up) (Chart 7, blue). Commodities may have already topped (Chart 7, red), but appear less likely at the moment.
This semi-bullish view applies to several individual commodities as well.
The primary count is that the USD index is working to complete a [B] wave (or [X] wave) decline since its 2009 high (see DX and EURUSD, Potential x Waves too (4/21/11)). Once the decline is complete, the subsequent rally should carry the USD index to above 90 and possibly to above 100. See Chart 8, purple.
It appears equally likely, at the moment, that (1) the low is already in OR (2) the current rebound is only wave D of a potential ending diagonal.
For the near term, additional upside potential is likely after a pullback since the advance from the low is a well-formed five wave advance.