MTU Weekend Ed. - Reading the Impasse (7/29/11 Close)

The continued debt ceiling impasse has finally got a number of asset markets spooked - stocks, precious metals(gold), bonds and USD-crosses in particular. It is widely reported that the U.S. stock market has just suffered the largest weekly loss in over a year and short term financing markets have begun to be stressed.

U.S. Stocks - range bound but range busting to be
Oil supply shock, Japanese nuclear crisis, euro-area sovereign debt crisis and the U.S. debt ceiling impasse have kept stocks range-bound for all of 2011 so far. At 1292.28, SP500 is now sandwiched between its most recent high of 1347 and its 200-day moving average of 1284.84, awaiting a breakout.

Chart 1 presents the top tracking counts. Please also see squiggle counts on SPX and ES in the appendix.

The primary count (subjective) expects the range to hold with the current decline being a 2nd wave retrace (blue). Expect a breakout to new highs shortly.

A moderately bearish alternative (red) allows for continued consolidation to a lower low in the form of a large W-X-Y structure, perhaps to bring the QE fractal to completion (Chart 2). In this case, odds favor a fresh round of monetary stimulus - QE3.

If the hope rally decides to come to an end, we’ll call the late July high a truncated top (Chart 1, purple).


Gold (in USD and euro) - topping

Gold (as priced in USD) is wrapping up a five-wave (impulse wave) advance since its 2008 financial crisis low (Chart 3). The blue count allows for one more consolidation and upward push while the red count has the a top in sight. When the reversal takes place, the downside target is around 1150.

Gold (as priced in euro) is also topping (Chart 4). The blue count places gold in wave [iii]-up of 5-up while the red count depicts a contracting ending diagonal.

It is interesting to note that Gold perhaps has more upside potential relative to euro than to USD with respect to the impulse wave advance since its 2008 financial crisis low. If so, look out for relative euro weakness within this final stretch.


Bonds (10Y US Treasuries) - recount but still toppingThe recent rally pushed long term Treasury yields to fresh 2011 lows. This development invalidated the previously proposed flat and calls for a recount - Chart 5 presents a triple three count for the 10-year U.S. Treasury yield. Accordingly, a major top in long term Treasuries remains within sight.





Appendix - Squiggles

Market Timing Update (7/29/11)

[110pm] Wilshire 5000 count update -

[1230pm] ES count update -
See the 2nd chart below, bouncing off MA200
[9am] ES Squiggles -
ES - a potential thrust out of an overnight triangle
SPX cash - now around 200MA and a month-end session
[720am] Overnight update (ES, DX) -
ES - some potentially wave-completion action overnight
DX - close to confirm a double bottom if overlap occurs

Market Timing Update (7/28/11)

[EOD] Stocks -
[320pm] ES update -
a follow up to the 725am entry










[12pm] Gold, INDU and NDX ED update -

Gold - potential extended fifth or a fourth wave pullback, zigzag decline from the high so far.
INDU - counts better with one more lower low, but INDU did have 9 waves down from the July 21st high so far.
NDX - expanded flat B-up as discussed in yesterday's update still a possibility.

[725am] Overnight update (ES)-
It'sprobable that yesterday's sell-off in Gold is is wave C of an expanded flat wave (4), invalidation point at yesterday's low.

Market Timing Update (7/27/11)

[EOD] Stocks -
Please cycle through earlier entries for the day below. They are still relevant and food for thought. Here's a summary -
[312pm] - Wilshire 5000, a zigzag retrace from its nominal high, potentially as a 2nd wave, see the latest weekend commentary.
[250pm] - NDX ending diagonal, appear to suggest an additional decline following a rebound based on its futures.
[110pm] - RUT Quantitative Easing fractals - on track to point #7 if it continues to track. It appears to suggest a resolution to the debt-ceiling uncertainty after point #7 is reached.
[1055am] - a potentially major top in Gold

[312pm] Count update (WLSH) -
A zigzag retrace










[250pm] NDX ED update -
Five down in NQ and thus a potential expanded flat wave B retrace in NDX. Guideline suggests a retrace to the base of ED if it is one.

[110pm] Fractal count update (RUT)-
Revisiting the QE fractal an ABC decline so far turns into a five (say due to Thur's and Fri's macro numbers) . It's hard not to get philosophical about waves, sometimes. See the 2nd chart below.

[1055am] Count update (Gold)-
Some kind of top (could be major as indicated) if no further extension.

[10am] Count update (INDU, ES)-
Another triangle in the works?
[810am] Overnight update (ES)-

Market Timing Update (7/26/11)

[EOD] Stocks -
Three top tracking counts in SPX/INDU (Chart 1) and Squiggle count on NDX (Chart 2)
[blue] A regular five-up in INDU and an LD in SPX as wave 1-up, now in wave 2-down, [a] of 2-down likely ending/ended.
[green] bullish 1-2-[i]-[ii] setup
[purple] expanding EDT

[245pm] NDX ED followup -
no pun intended










[1030am] Count update (INDU) -
The wave structure of INDU brings about some clarity? see the 2nd chart below
[810am] Overnight update (ES) -
a potential small degree triangle in the works

Market Timing Update (7/25/11)

[EOD] Stocks -
NDX - one more upward push (overthrow) to complete this potential ED likely
SPX - leave room for the red expanding EDT.
See Breaking Out? (7/22/11) for thoughts on the larger picture.
[250pm] Potential NDX ED sighting -










[755am] Overnight update (ES) -
Additional near term downside potential most likely, expanded EDT likely, a 1/2/1/2 setup less likely.

MTU Weekend Ed. - Breaking Out ? (7/22/11 Close)

Near term upward breakout likely
Odds favor a near term break out to the upside in stocks, given wave structures domestic and international benchmark indexes. Note that

Nasdaq100 index and DJ utility average delivered new recovery highs this past week. At this past week’s high, SP100 and INDU are just 0.23 and 2.46 index points shy of their respective July highs. The Nasdaq Composite Index is now 16.22 index points (0.57%) shy of its July high.

SPX once again closed above its decade long resistance zone (Chart 1), readying for the Terminal Wave (7/8/11).

Key international stock indexes, particularly European ones, are showing signs of an upward reversal. In fact, using Dow Jones World Stock Index and Global Dow Index as proxies, one suspects that this proposed terminal move is an extended one (Chart 2 and Chart 3).


Two key questions remain
Should the market breaks out upwards, it likely confirms the end to a multi-month consolidation dated back to the February 2011 high and proves to be range busting (see Range Busting to be (7/15/11)).

Did the correction ended in mid-June in the form of a flat or in mid-July in the form of a triangle? Odds appears to favor a flat over a triangle, consistent with the wave structure in COMPQ and NDX. Chart 4 offers a local count under this interpretation.

What’s the larger count? Terminal wave (7/8/11) highlights a number of long term wave counts, none of which has been rejected, only the associated odds having fluctuated.


Downside risks
[1] A simple zigzag hope rally approaching its end (b wave)
Of particular note is NDX, whose current high of 2432.84 comes very close to a long term equality level of 2462.84 (Chart 5) and whose near term wave structure has satisfied the minimum requirement of a top (Chart 6).


A reversal around currently levels (likely after another push higher) in the broader market makes the structure of the hope rally a simple zigzag (Chart 7) and the terminal wave in SPX an expanding ending diagonal. Both of these structures have aesthetic appeal, particularly from a wave personality perspective (Chart 4, red labels). Note that (5)=(1) at 1376.4 and (5)=1.618(1) at 1449.53 in SPX.




[2] Correction continues It’s probable that the 5-month correction is only to extend with the current advance being just an (X) wave. Once over, a sizable (Y) wave decline should complete the [X] wave correction of a large double zigzag hope rally (Chart 8).