Market Pulse

STR Bullets

Feb 16

Written by:
2/16/2016 3:26 PM  RssIcon

“Plain English”

US Equities: The market appears increasingly ready to rally for more than a few days. We say this because there are already a number of bullish divergences. For example, despite repeated attempts, the DJIA has yet to pierce its August low on either a closing or intra-day basis even though most other indexes have done so. Daily Coppock Curves and RSIs for most indexes were noticeably higher last week than they were in January or last August. It is also important to note that the 60-day high-low ratio developed by the late Martin Zweig indicates that only seven other markets since 1982 were more oversold than the current decline.

Global Equities: In recent weeks, increased concern has been paid to European banks. That concern appears warranted. Last week the STOXX Europe 600 Bank Index hit a low (at 130.48) that represents more than a 42% decline just from its 52-week high. In recent years, the index was never able to retrace as much as 38.2% of its 2007-2009 bear market and now the post-2009 support line has been decisively breached. This weakness suggests that the index is at risk of breaking at least its 2011 low (115.87) and possibly its 2009 low (90.31).

Interest Rates: Last week’s decline by 10-year yields confirmed our count that the 2013-2015 downtrend was an intermediate (A)-wave and that June’s 2.49% recovery high marked the end of an intervening (B)-wave. The decline since then is, by definition, an intermediate (C)-wave. This, together with Fibonacci relationships and the weekly/monthly Coppock configuration, indicates that 2012’s all-time low at 1.39% should be challenged in the weeks ahead.

Commodities: Recent strength allowed gold to decisively breakout through its post-January downtrend line, which satisfies the minimum requirements for a complete diagonal triangle, which is an ending pattern. Indeed, based on daily closing prices, all but one of the resistance trend lines that developed since 2012’s recovery high (at 1791) have been breached. (The holdout is the resistance line from August 2013. This line is currently at 1249; last week’s high was 1247.) Thus, evidence is quite compelling that the entire 2011-2016 primary degree {A}-wave bear market is complete. Silver appears to have also completed an {A}-wave low.

US Dollar: The dollar has quite decisively violated its well-defined uptrend channel from the 2011 lows versus the Japanese yen. In Elliott Wave terms, currencies tend to move in larger degree ABC trends. Since we can easily count the 2011-2015 rally as a five-wave pattern, it is likely that last June’s ¥/$125.85 high marked the end of the dollar’s primary degree {A}-wave within a larger rally trend. The post-June decline is, therefore, the {B}-wave, which should be a Fibonacci retracement of the 2011-2015 rally from ¥/$75.65 to ¥/$125.85.

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