Sunday, May 3, 2015

MTU Weekend Ed. - Monthly Outlook Update (5/1/15 close)

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

Our current baseline tracking scenario interprets Friday’s rebound as the beginning of wave [3]/[C] of the final upswing before a major pullback (Chart S1, blue). Chart S2 (SPX) and Chart S3 (NDX) tracks short term price actions under this interpretation.
There is some small wiggle room for SP500 to dip below Thursday’s low of 2077.59 for this scenario to remain intact.  However, recent price actions suggest increased weakness (see below).

This past week’s price action in stocks has reduced the likelihood of wave [5] advance since the 2009 bottom (Chart S4, green) and also raised the possibility that a meaningful corrective pullback is already in progress (Chart S1, red tops and Chart S4 blue). See also New High, but … (4/24/15).

While it takes time to resolve the long term trends in intermediate-term interest rates (Chart B1), 10-year US Treasury yields are likely to retest the 2.5% area (Chart B2). While yields are currently at short term resistance, there is much upside potential if a third wave is in progress.

The USD index pulled back from its March topping candle.
If a wave 4 or wave D pullback is in progress (Chart $1 green), it can retest the 90 area or the 85 area, respectively.
If USD is unable to break out of potential long term resistance (Chart $2) and has topped (Chart $1 red), a multi-year decline is likely.

Gold Gold’s USD price has been making reluctant lower highs since the 2nd half of 2013, including its most recent attempt to 1224.50. The larger trend remains down until such price action changes. We have been tracking bearish potential with the green, black and red wave C scenarios. At the moment, Gold is retesting the lower end of its 2-year range. See Chart G1.

If Gold has indeed bottomed in Q4 of 2014, now is the time for a small-degree wave three surge (Chart G2). Note that Gold did not make a lower low in the selloff to 1141.60 during Q1 of 2015, and Gold’s 2-year range as highlighted by the blue lines offers potential support.