Saturday, June 29, 2013

Monthly Outlook Update (6/28/13)

Stocks, Bonds, Dollar, Gold

The 7.5% sell-off from the May high in stocks appear largely corrective (Chart 1).  As a result, we maintain the primary counts of

[1]  a wave (4) pullback with respect to the 2011 low.  The proposed pullback is likely complete at the June low (Chart 2 blue).  The red count in Chart 1 offers an alternative where wave B is still in progress as a flat or triangle, to be followed by wave C-down to a moderate lower low. 

[2]  a deeper wave (D) pullback within a diagonal triangle since the 2009 low (Chart 3).  In this case, the wave (D) sell-off can be reasonably deep (to about 1430 which is 15% off the May high) and can lead to widespread bearish sentiment. 

At the same time, we continue to track the bearish count of a resumed bear market (Chart 2 red) given its relevance and potential impact.  We observed in Post-FOMC Update (6/21/13) that "Since this past week’s crash has eliminated one of the logical places, the May high is now one of the two final logical termination points of the Hope Rally."

The wave (D) decline of the proposed diagonal triangle is likely as powerful as the initial sell-off of a bear market.  The difference is that the former terminates and the latter is lasting.

Bond yields surged in June partly in response to risks of the Fed's tapering its QE (Chart 4).

10-year U.S. Treasury yield is now approaching a technical resistance zone in a three-wave rise off its all-time low in 2012 (Chart 4, trend line).   The initial impulse wave upswing in 2012 (Chart 5, red [a], green [i]) now conveniently serves a Fibonacci division (0.382 to 0.618) of the distance between the 2012 low and the June high.  Also note that wave counts in Chart 5 suggest that the upswing in yields over the past year is either a flat or a [i]/[ii]/(i) sequence. 

As such, we see no need to alter the long term tracking counts in Chart 4.

The USD index dipped slightly below its April/May low in June but has quickly rebounded and is yet to surpass its May high (Chart 6).  As a result, there's no need to alter our short term and long term tracking counts (Chart 6 and Chart 7).  See prior monthly outlook updates for discussions.

We have been tracking gold with a fourth wave pullback since its 2011 top. With another plunge during the month of June, the proposed pullback is approaching a fib-0.5 retrace and its 2-year anniversary in late August (Chart 8).  Potential targets for the low are the June low, 1150, 1125, 970.

The potential for a corrective (4th wave) pullback has support from the wave structure of Gold priced in Japanese Yen (see Monthly Outlook Update (4/26/13)) which sports a potential expanded flat (Chart 9). 

Under the three near term tracking counts discussed in Monthly Outlook Update (5/31/13), we label the June low in Gold as
[red] wave 3 of (C),
[blue] wave [iii] or [v] of an extended wave 5 of (C),
[green] wave 5 of (C) out of a triangle  (Chart 10).  This count indicates the low is at hand or imminent.