Friday, January 29, 2016
MTU Weekend Ed. - Monthly Outlook Update (1/29/16 close)
Stocks, Bonds, USD, Gold - key intermediate term scenarios to watch
The January plunge in stocks is the "downward thrust" we outlined in 2016 Outlook (1/1/16), although the downward thrust unexpectedly but moderately exceeded the August 2015 low in SPX.
U.S. stocks likely have completed the proposed fourth wave decline, either as wave  relative to the 2009 bottom (Chart S1) or wave (4) relative to the 2011 low (Chart S2).
These two fourth wave at different degrees are relevant in the sense that:
(a) Support from wave  (Chart S1) is around 1720 and rising, which introduces the alternative possibility that the January low is wave (a) of  as marked.
(b) Support from wave (2) (Chart S2) is around 1865 and rising, which coincided with the January low.
A retest of the lows in early February remains probable but not required (Chart S3, Chart S4) . Whether the retest is the bullish blue wave ii or the bearish red wave v, the January low is likely to (roughly) hold since a typical red-wave-i-and-v-equality would suggest a failed red wave v.
The U.S. 10-year Treasury Yield Index is retesting the gray "neck line" (Chart B1). If the H&S pattern, which we think is less likely at the moment, does play out, its target would be a near zero 10-year yield. In an environment where negative nominal policy rates are already a reality, it is prudent to keep an eye on this extreme scenario.
Our base case scenario is that bonds are overbought and long-term rates are likely rebound higher from here (Chart B2).
Our long term tracking of the USD index remain unchanged (Chart $1). If the USD index does not break out to a higher high in early February (Chart $2 green), a retest of the 93 area is likely next (Chart $2 blue, red).
Gold is likely in the final subdivision of an EDT (Chart G1). The current upswing in Gold is likely wave (b)-up of wave [e]-down of the proposed EDT (Chart G2). If so, a final sell-off should deliver the overthrow to conclude this EDT. The bullish alternative of Gold having bottomed appears less likely than the main tracking count at the moment.