Long-term Forecast for July 1, 2016

| July 1, 2016

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

Technical Analysis

US Stocks are in a secular bear market that began in 2000. The second cyclical uptrend began in March 2009 and the rally moved higher at an unsustainable rate after bottoming in late 2011. The sharp decline in August 2015 signaled the likely start of the next cyclical downtrend. Technical indicators are neutral to slightly bullish overall, suggesting that direction is in question with a slight upward bias.

Cycle Analysis

US stocks currently have an average long-term cycle period of about 48 months (4 years) and the following chart displays all of the long-term cycle lows (LTCLs) since the early 1980s.

We are 88 months into the cycle following the LTCL in March 2009. The window during which the next LTCL is likely to occur is from July 2017 to December 2017.

Long-term cycle tops and bottoms occur in conjunction with an annual cycle translation change. We are 9 months into the annual cycle from October. A quick move up to new highs would reconfirm the current bullish translation and favor additional strength in 2016. Alternatively, a quick reversal followed by an extended decline phase that moves well below the annual cycle low (ACL) in October 2014 at 1,820 would signal the likely transition to a bearish translation.

Long-term Outlook

  • Bullish Scenario: A monthly close well above the previous long-term high at 2,109 would reconfirm the cyclical bull market from 2009 and forecast additional gains.
  • Bearish Scenario: A reversal and close well below the bottom of the Bollinger bands at 1,929 would reconfirm the new cyclical downtrend and predict substantial additional losses.

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

US 10-year Treasury Note Yield Monthly Chart Analyses

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

Technical Analysis

Following the long-term bottom in 2003, the 10-year note yield remained confined to a trading range until 2008 when the stock market crash propelled yields down through the lower boundary of the range near 3.50%. However, yields quickly returned to the trading range as stocks rallied sharply off of the 2009 low. After holding near the bottom of the trading range during the first quarter of 2010, yields broke below trading range support again and the long-term downtrend resumed. The violent oversold reaction from August 2012 reversed in January 2014 and yields approached previous lows of the long-term downtrend in 2015. Technical indicators are bearish overall, strongly favoring a continuation of the decline.

Cycle Analysis

We monitor cycle highs in yield as they correspond to cycle lows in price. The 10-year note yield currently has an average long-term cycle period of about 36 months (3 years) and the following chart displays all of the long-term cycle highs (LTCHs) since the early 1980s.

The sharp decline in June confirms that the latest LTCH formed in July 2015. We are 12 months into the cycle following the LTCH in July 2015. A move well below the long-term cycle low (LTCL) in 2012 near 1.49% would reconfirm the current bearish translation and favor additional long-term weakness. Alternatively, a quick rebound followed by an extended rally phase that moves well above the LTCH in late 2013 near 3.03% would signal the likely transition to a bullish translation. The window during which the next LTCH is likely to occur is from April 2018 to September 2018.

Long-term cycle tops and bottoms occur in conjunction with an annual cycle translation change. The sharp decline in June confirms that the latest annual cycle high (ACH) formed in May. We are 1 month into the annual cycle from June. An extended decline phase that moves well below the last annual cycle low (ACL) at 1.57% would reconfirm the current bearish translation and favor additional weakness. Alternatively, a quick rebound followed by an extended rally phase that moves well above the ACH in 2015 at 2.47% would signal the likely transition to a bullish translation.

Long-term Outlook

  • Bullish Scenario: A rebound and close above long-term downtrend resistance near 2.21% would predict a return to congestion resistance in the 2.50% area.
  • Bearish Scenario: A close well below congestion support in the 1.50% area would reconfirm the long-term downtrend and forecast additional losses.

The bearish scenario is highly likely (>80% probable).

US Dollar Index Monthly Chart Analyses

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

Technical Analysis

The US dollar index has been in a secular bear market since the peak in early 2002. The sharp decline in March moved well below support at the lower boundary of the cyclical uptrend from 2011, signaling the likely start of a meaningful correction. Technical indicators are effectively neutral overall, suggesting that direction is in question.

Cycle Analysis

The US dollar currently has an average long-term cycle period of about 48 months (4 years) and the following chart displays all of the long-term cycle lows (LTCLs) since the early 1980s.

We are 26 months into the cycle following the LTCL in May 2014. The magnitude and duration of the last rally phase signals the likely transition to a bullish translation and favors additional long-term strength. The window during which the next LTCL is likely to occur is from February 2018 to July 2018.

Long-term cycle tops and bottoms occur in conjunction with an annual cycle translation change. We are 2 months into the annual cycle from May. Annual cycle translation is in question. An extended rally phase that moves above the annual cycle high (ACH) in early 2015 at 100.38 would reconfirm the current bullish translation and favor additional strength. Alternatively, a quick reversal followed by an extended decline phase that moves well below the last annual cycle low (ACL) at 91.88 would signal the likely transition to a bearish translation.

Long-term Outlook

  • Bullish Scenario: A rebound and monthly close above the previous long-term high at 100.25 would reconfirm the uptrend from 2014 and forecast additional gains.
  • Bearish Scenario: A close below the recent short-term low at 93 would predict a return to congestion support in the 90 area.

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

Gold Monthly Chart Analyses

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

Technical Analysis

Gold has been in a secular bull market since early 2001. The cyclical downtrend from 2011 has been in progress for nearly 5 years and the strong rebound during the past 6 months suggests that a cyclical low may have formed in late 2015. Technical indicators are slightly bullish overall, tentatively favoring a continuation of the advance from January.

Cycle Analysis

Gold currently has an average long-term cycle period of about 96 months (8 years) and the following chart displays all of the long-term cycle lows (LTCLs) since the early 1980s.

We are 92 months into the cycle following the LTCL in October 2008. The window during which the next LTCL is likely to occur is now through December. The latest LTCL may have formed in December 2015, although we would need to see additional strength in July to confirm that development.

Long-term cycle tops and bottoms occur in conjunction with an annual cycle translation change. We are 6 months into the annual cycle from December 2015. Cycle translation is in question. A quick reversal followed by an extended decline phase that moves below the last annual cycle low (ACL) at 1,045 would reconfirm the current bearish translation and favor additional weakness. Alternatively, an extended rally phase of more than 6 months in duration that moves well above the annual cycle high (ACH) in 2015 at 1,308 would signal the likely transition to a bullish translation.

Long-term Outlook

  • Bullish Scenario: A monthly close above current levels would predict a move up to congestion resistance at the 1,400 level.
  • Bearish Scenario: A reversal and close below the previous long-term low at 1,060 would reconfirm the cyclical downtrend from 2011 and forecast a move down to congestion support at the 1,000 level.

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

Oil Monthly Chart Analyses

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

Technical Analysis

The secular bull market in oil that began in late 1998 experienced a violent crash in 2008 following a speculative advance to nearly 150. A sharp countertrend rally followed a rebound off of strong congestion support in the 40 area in early 2009 and the resulting cyclical uptrend moved gradually higher until closing well below uptrend support in October 2014. The breakdown was a meaningful bearish development that confirmed the start of a new cyclical downtrend. The strong advance during the last 4 months indicates that a cyclical low likely formed in February. Technical indicators are neutral to slightly bearish overall, suggesting that direction is in question with a slight downward bias.

Cycle Analysis

Oil currently has an average long-term cycle period of about 60 months (5 years) and the following chart displays all of the long-term cycle lows (LTCLs) since the early 1990s.

We are 4 months into the cycle following the LTCL in February 2016. The window during which the next LTCL is likely to occur is from November 2020 to April 2021.

Long-term cycle tops and bottoms occur in conjunction with an annual cycle translation change. We are 4 months into the annual cycle from February. The move well below the previous annual cycle low (ACL) during the last decline phase reconfirms the current bearish translation and favors additional weakness.

Long-term Outlook

  • Bullish Scenario: A monthly close well above congestion resistance at the 50 level would reconfirm the uptrend from February and forecast additional gains.
  • Bearish Scenario: A reversal and close below the previous long-term low at 33.74 would reconfirm the cyclical downtrend from 2013 and predict additional losses.

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

Category: Forecasts, Long-term Forecasts


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