Short-term Forecast for October 6, 2011

| October 6, 2011

Treasury Yields Break Above Downtrend Resistance

The 10-year Treasury note yield closed sharply higher today, moving well above resistance at the upper boundary of the power downtrend from late July. The close well above downtrend resistance signals the likely development of at least a short-term oversold reaction.

The early formation of the alpha low (AL) of the cycle from late September is another bullish development that favors the oversold reaction scenario. A subsequent close well above the last short-term cycle high (STCH) near 2.07% would confirm a transition to right translation and forecast additional short-term strength heading into the next high in late October.

Additionally, the strong move higher this week has created a bullish engulf pattern on the weekly chart. Therefore, a strong close tomorrow would confirm the cycle low setup that occurred last week and generate a cycle low signal, indicating that an intermediate-term cycle low (ITCL) likely formed two weeks ago.

It is important to note that the translation of the current intermediate-term cycle is extremely bearish, so the formation of an ITCL does not necessarily suggest the development of a long-term low. However, the violent decline from July has created an extremely oversold technical condition, so yields will likely experience a potentially violent oversold reaction heading into the next intermediate-term high in October or early November.

S&P 500 Index Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the S&P 500 index. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

The S&P 500 index closed sharply higher for a third straight session, moving toward the middle of the trading range between 1,120 and 1,220 and approaching resistance at the upper boundary of the power downtrend from late July. Technical indicators are neutral to slightly bullish overall, suggesting that direction is in question with a slight upside bias.

Cycle Analysis

The strong move higher today confirms that the latest short-term cycle low (STCL) occurred on October 4 as indicated by the cycle low signal yesterday. A brief alpha phase rally of less than 9 sessions in duration followed by a quick move down to new lows would reconfirm left translation and favor additional short-term weakness. Alternatively, an extended advance that approaches the Beta High (BH) of the previous cycle would suggest that short-term direction is in question. The window during which the next STCL is likely to occur is from November 14 to December 5, with our best estimate being in the November 25 to December 1 range.

  • Last STCL: October 4, 2011
  • Cycle Duration: 3 trading days
  • Cycle Translation: Left (bearish)
  • Next STCL Window: November 14 to December 5; best estimate in the November 25 to December 1 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A close well above congestion resistance near 1,176 would predict a move up to trading range resistance at the 1,220 level.
  • Bearish Scenario: A reversal and close below the recent low near 1,097 would reconfirm the downtrend from May and forecast additional losses.

Both scenarios are equally likely.

US 10-year Treasury Note Yield Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the US 10-year Treasury note yield. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

Yields closed sharply higher again today, breaking well above resistance at the upper boundary of the power downtrend from late July and signaling the likely development of an oversold reaction. Technical indicators are moderately bullish overall, favoring a continuation of the reaction.

Cycle Analysis

We are 7 trading days into the cycle following the short-term cycle high (STCH) on September 28. The early formation of the alpha low (AL) is a bullish development and a move above the last STCH during the rally phase of the current cycle would signal a transition to right translation and favor additional short-term gains. The window during which the next STCH is likely to occur is from October 20 to November 10, with our best estimate being in the October 21 to October 27 range.

  • Last STCH: September 28, 2011
  • Cycle Duration: 7 trading days
  • Cycle Translation: Left (bearish)
  • Next STCH Window: October 20 to November 10; best estimate in the October 21 to October 27 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A close above current levels would reconfirm the oversold reaction from early this week and predict a move up to strong congestion resistance in the 2.10% area.
  • Bearish Scenario: A reversal and close below the recent low near 1.70% would reconfirm the downtrend from February and forecast additional losses.

The bullish scenario is more likely (~70% probable).

US Dollar Index Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the US dollar index. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

The index closed moderately lower today, retreating further from recent highs and moving below support at the lower boundary of the rally from late August. Technical indicators are neutral to slightly bullish overall, suggesting that direction is in question with a slight upside bias.

Cycle Analysis

We are 7 trading days into the cycle following the short-term cycle low (STCL) on September 28. The beta low (BL) will likely form sometime during the next 4 sessions. The window during which the next STCL is likely to occur is from October 21 to November 4, with our best estimate being in the October 26 to November 1 range.

  • Last STCL: September 28, 2011
  • Cycle Duration: 7 trading days
  • Cycle Translation: Right (bullish)
  • Next STCL Window: October 21 to November 4; best estimate in the October 26 to November 1 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A rebound and close above the recent high near 79.60 would reconfirm the uptrend from May and forecast additional gains.
  • Bearish Scenario: A close below current levels would confirm the break below power uptrend support and predict a move down toward congestion support at the 77.50 level.

The bearish scenario is slightly more likely (~60% probable).

Gold Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the gold market. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

Gold closed slightly higher today, holding above support at the lower boundary of the long-term uptrend. Technical indicators remain moderately bearish overall, favoring a continuation of the downtrend from August. However, the lower boundary of the long-term uptrend is a strong support level and the lack of downward progress during the last 8 sessions indicates that at least a short-term bottom may be forming in this area.

Cycle Analysis

The duration of the advance from late September has caused a change to our preferred cycle count and it is now likely that the latest short-term cycle low (STCL) occurred on September 26. The beta high (BH) of the current cycle will likely occur sometime during the next 4 sessions. The formation of the next STCL well above the previous low would favor a transition back to right translation and forecast short-term strength. The window during which the next STCL is likely to occur is from October 12 to October 24, with our best estimate being in the October 13 to October 19 range.

  • Last STCL: September 26, 2011
  • Cycle Duration: 9 trading days
  • Cycle Translation: Left (bearish)
  • Next STCL Window: October 12 to October 24; best estimate in the October 13 to October 19 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A close above congestion resistance in the $1,660 area would predict a move up toward strong congestion resistance at the $1,750 level.
  • Bearish Scenario: A close well below long-term uptrend support near $1,605 would reconfirm the downtrend from August and forecast additional losses.

Both scenarios are equally likely.

Gold Currency Index Daily Chart Analysis

The Gold Currency Index (GCI) is a composite of gold prices in the currencies of 10 of the largest economies in the world as defined by GDP. It is therefore currency independent, reflecting the intrinsic value of gold as an international currency itself.

Technical Analysis

The GCI closed slightly higher today, holding above recent lows of the overbought correction from early September. Technical indicators remain moderately bearish overall, favoring a continuation of the decline.

Short-term Outlook

  • Bullish Scenario: A close above congestion resistance at the 41.75 level would predict a move up toward congestion resistance near 43.50.
  • Bearish Scenario: A close below the recent short-term low near 39.60 would reconfirm the downtrend from early September and forecast additional losses.

Both scenarios are equally likely.

Oil Daily Chart Analyses

The following technical and cycle analyses provide short-term forecasts for the oil market. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

Technical Analysis

Oil closed sharply higher today, reacting further off of recent lows of the downtrend from May. Technical indicators are slightly bullish overall, tentatively favoring a continuation of the reaction.

Cycle Analysis

We are 9 trading days into the cycle following the short-term cycle low (STCL) on September 23. The beta high (BH) will likely form sometime during the next 3 sessions. The strong move off of the beta low (BL) suggests that cycle translation is in question and a move well above the alpha high (AH) would signal a transition back to right translation. The window during which the next STCL is likely to occur is from October 12 to October 26, with our best estimate being in the October 13 to October 19 range.

  • Last STCL: September 23, 2011
  • Cycle Duration: 9 trading days
  • Cycle Translation: Left (bearish)
  • Next STCL Window: October 12 to October 26; best estimate in the October 13 to October 19 range.
  • Setup Status: No active setups.
  • Trigger Status: No pending triggers.
  • Signal Status: No active signals.
  • Stop Level: None active.

Short-term Outlook

  • Bullish Scenario: A close well above downtrend resistance near $85.30 would confirm the development of an oversold reaction and forecast additional short-term gains.
  • Bearish Scenario: A reversal and close below the recent low near $76.40 would reconfirm the downtrend from May and forecast additional losses.

Both scenarios are equally likely.

Category: Forecasts, Short-term Forecasts


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