Summary

 Stock Indices  The major U.S. indices completed five wave downswings from their late-March highs into Thursday’s lows. In doing so, they’ve also ended larger degree 5-3-5 sequences from their respective November/January highs which adhere to Fibonacci proportionality, measuring as corrective a-b-c zig zags. If that’s so, then we can discern two things – first, declines from those November/January highs have ended single zig zags within developing double zig zags, part of a sustained correction that is expected to continue for several months, into October or year-end – second, a corrective upswing has begun X waves from Thursday’s lows and these can last several weeks whilst upside targets are between 10-12% per cent. It’s unlikely the zig zag declines into Thursday’s lows represent the end of this year’s correction because the FTSE-100 and ASX-200 indices are still engaged within expanding flat corrections from this year’s highs – whilst U.S. indices were finishing zig zags into Thursday’s lows, these indices were still trading above their March lows, pulling a little lower in sync, but preparing to resume B wave rallies from March’s lows targeting marginal higher-highs. They too are set to develop higher to complete those B waves towards targets around 11% per cent above current levels – but upon completion, they will begin sustained declines as wave C of the expanding flat pattern, pulling prices significantly lower through to October/year-end. This phase begins secondary zig zag declines for the major indices. These pattern and amplitude differences form unique paths for each index although their positive sync helps to map the extent of this next upside rally and the depth of the next declines.  

Currencies (FX) The US$ dollar index traded as high as 105.00 today, levels not seen since Dec.’02 so it’s not surprising to see bullish sentiment reaching extremes as inflationary expectations remain elevated. Levels have now reached upside targets in completing the dollar’s five wave uptrend that began from the Jan.’21 low – yes, it could stretch just a little higher but looking at the other major G10 currency pairs, there’s already good reason behind this week’s extremes ending current trends. The Euro/US$ traded down to 1.0350 and it too has reached minimum Elliott Wave pattern requirements for ending its entire decline that began from 1.2350 – Stlg/US$ traded down to 1.2157 this week, again, showing signs of bottoming, ending its counter-trend decline from 1.4249. US$/Yen is topping out at 131.34 max. 133.19+/- whilst the commodity currencies, US$/CAD has ended its counter-trend upswing from last June’s ’21 low of 1.2007 into this week’s high of 1.3077 – AUD/US$ has just completed its counter-trend decline from last year’s high of 0.8008 into today’s low of 0.6828. Watch for further confirmation this coming week. 

Bonds (Interest Rates)  The US10yr yield has slipped lower, away from this month’s peak of 3.203 following last week’s Federal Reserve rate hike and this week’s latest headline CPI inflation data that came through at another elevated level of 8.3% per cent. That may seem surprising as background confirmation that the Fed is actively hiking rates with inflation expectations still rising would ordinarily translate into higher yields not lower. So why are yields declining? Markets are forward looking and they’re trading as if most of the rate rise is already priced-in. Furthermore, persistent inflation and interest rate trends are causing fears of a U.S. recession, attracting safe-haven bond buying as stock markets adjust to the downside. But stocks have just bottomed, at least for now, and have begun a 10-12% per cent rally. Could that send the US10yr yield higher? Probably not, at least from an EW perspective. March’s advance from 1.680 is the finalising sequence of the diagonal’s uptrend that began from the pandemic low – in Europe, the DE10yr yield has completed a 3rd-of-3rd wave uptrend within the five wave impulse pattern developing from the pandemic low at this month’s high of 1.188. So far, only an intra-hourly three wave sequence is visible in the decline from that high into Thursday’s low of 0.834 – this low will need to be broken in order to validate a deeper, multi-month 4th wave correction has begun.  

Commodities Precious metals remained under pressure this week as rising inflationary expectations were fanned by the latest headline CPI data and a stronger US$ dollar. One thing we’ve learnt recently is that gold is not acting as an inflation-hedge nor as a safe-haven. And its this realisation from investors that has caused a reality check with long-liquidation pulling prices lower during the last month. Silver has underperformed gold over the last month, widening the gold/silver ratio from 1:78 to 1:88 this week. This has occurred whilst silver has hit downside targets of 20.60+/-, trading down to 20.44 today but closing higher at 21.14. This means that gold is bottoming too, at today’s low of 1800.00 with downside risk to max. 1787.00+/-. The outlook for both gold and silver now turn bullish at a juncture where the US$ dollar index is heading into a synchronous peak. New uptrends are likely to last the next year or two resulting in record highs. In the Energy markets, Crude oil is responding higher as stock markets bottom whilst beginning counter-trend rallies that are expected to last the next several weeks. Crude oil’s most bullish wave count would allow this risk-on, positive-correlation to push prices as high as 126.90+/- although failing to break above March’s high of 130.50.