First, when looking at the dollar, it does give the impression of being in a fourth wave consolidation prior to a fifth wave up. (An alternative could be a diagonal upward to form a fifth wave.) (The count would have to be revised if the dollar reversed downward and fell under 80/81.) Here's Tony's chart of the dollar:
Next, bonds "should" be topping out as we and others are discussing. (You can see some interesting articles on this, using the Market News Headlines area along the right side of this page (click Treasury Bonds topic), including one entitled "Treasuries seen at risk of "bubble" trouble" at Reuters.) I do have to wonder whether bonds are similarly in just a third wave of a "final" push up - so that we'll see a fourth wave consolidation in bonds also, prior to a fifth wave peak. It's purely my own guess, which I'll use as a way to remind myself not to get too deep into a short position before a trend reversal pattern has been confirmed.* But the long bond already pushed over the 132 long-term target my (late) trading mentor described (based on a measured move out of a triangle in the long-term chart), and already had a drop on Friday that could presage a trend reversal setup.
*As for the Elliott Wave counts on Tony's 10-year bond chart here, I think it's somewhat different from the EW count my prior mentor had used - but I'm not going into an EW debate here. Suffice it to say that there are reasons to believe that bonds have, or will, reach a significant peak now or soon. I do think it interesting that Tony expects a consolidation prior to bonds topping out during 2009 (see his comments excerpted below).
If bonds and the dollar "need" to push higher - consistent with Tony's view on Treasury bonds (again, read below) - it seems reasonable to me, anyway, to think that another round of weakness in equities could correlate to one more push up in both the dollar and bonds. (Although as you read Tony's EW commentary, you'll find that he's more cautiously optimistic about equities being poised for the bear market rally, than I currently find myself - but, we'll all let the market decide for us, probably next week.)
The chart below is Tony's comparison chart of LIBOR against the one-month U.S. bond yield, and does an interesting job of showing how much the short-term bond yield has fallen by comparison to the benchmark LIBOR:
I'd like to close by quoting a part of Tony's weekend commentary (you can see his full commentary at his Tony Caldaro's Elliott Wave Lives On site:
December 06
weekend update
REVIEW
Another volatile week in the equity markets after several economic reports hit multi-decade and/or record lows. ....
LONG TERM: bear market rally
This week the equity bear market entered its fourteenth month. .... We concluded in November, using third dimensional OEW analysis, that a recession began in November 2007 and should be continue until the end of 2009. We also concluded that the stock market should bottom a few months "after" the recession ends, in early 2010. There should be a series of market events leading up to the conclusion of the recession. These market events will act as the leading indicators. We will keep you posted.
Technically, the bear market has been unfolding in a series of abc's. As has every quantifiable bear market in the history of the US, including the depression. Bear markets are merely corrections to larger scale bull markets. In our effort to quantify this bear market we have maintained two counts. The first as posted on the SPX charts: an abc into the Jan 2008 low completing Major wave A, an abc rally into the May high completing Major wave B, and an abc down into the recent low potentially completing Major wave C and Primary wave A. The second count is posted on the DOW charts. This suggests five waves down to Mar 2008 to complete Major wave A, a rally into the May high to complete Major wave B, and now three waves down into the recent low as part of Major wave C and Primary wave A. The preferred count is posted on the SPX charts. .... Whenever Primary wave A does end, Primary wave B should provide a powerful rally, and then Primary wave C should unfold in another series of abc's into the final bear market low. Typically the C wave of any bear market is more devastating than the A wave. Please keep this in mind during the Primary wave B phase of the bear market. B wave rallies during bear markets are often mistaken for new bull markets. This mistake often lures investors into buying into the rally rather than selling. Remember we're only about halfway through the recession.
MEDIUM TERM: downtrend low at SPX 741
.... Once a new uptrend is confirmed we expect the SPX to test the 1107 long term pivot, and possibly the 1179 pivot before Primary wave B ends. Should this scenario unfold, this will provide the last opportunity to exit this market before Primary wave C unfolds.
SHORT TERM
Support for the SPX is at 848 and then 789, with resistance at 912 and then 935. Short term momentum set up a nice positive hourly divergence at friday's lows, and ended slightly overbought at the close. Thus far we have labeled the rally from the SPX 741 low into the 896 high as wave A. The pullback into mon/tues at 816/818, the thurs high at 876, and pullback to 818 again on friday, we have labeled wave B. From the friday low we should now be rallying in wave C. This entire abc rally should complete a larger wave A of the next uptrend. The degree of the waves will be determined as the rally (expected uptrend) unfolds. Since wave A was 155 points, and wave B bottomed at 818. Wave C will equal wave A at SPX 973, and will be 1.618 wave A at SPX 1068. We have one OEW pivot at 961 and another OEW pivot at 1061. So both levels are in play at this point in time. Let's see how the rally unfolds.
.....
COMMODITIES
Bonds continued to defy gravity gaining 2.2% on the week to multi-decade highs. More on this below.
Crude was hammered this week after OPEC failed to take any action during last weekend's emergency meeting, down 25.0%.
Gold continues to lag investor expectations as a safe haven, down 8.2% in its downtrend.
Currencies were relatively quiet with the Euro gaining 0.2%, and the USD gaining 0.5%. The USD appears to have concluded its uptrend.
SPECIAL COMMENT on BONDS
Throughout this decade investors have shifted from one asset class to another leaving bubbles in their wake. Real estate, credit, credit derivatives and then commodities. Each bubble has eventually led to an implosion in that asset class, which has fueled the bear market. Recently the Treasury market has begun to inflate. Apparently, a lot of this new liquidity is being pumped into bills, notes and bonds. After the 10YR bond yields went to multi-decade lows we reviewed the long term bond market from the rate peak in 1980. What we found was a series of, again ABC's, from the rate peak into the recent lows. Based upon this OEW analysis, and several other technical tools, we have concluded that long term rates will continue to move lower into next year. And may bottom at around 2%. Currently, rates have been declining since their 5.32% peak in mid-2007. A low occurred in March 2008 at 3.29%, and this ended the A wave down from the 2007 peak. A B wave rally followed into June and 4.32%. Since then the yields have declined in a smaller abc into the recent low at 2.51%. When this downtrend ends, rates should rally for a month or so, and then, decline in another small abc into their final low next year. Upside resistance should appear around 3.25%. One might want to wait for these rates before buying into the bond market. As you know Bonds rally in price while rates decline in value. All maturies of 2 years or less are now yielding less than 1%. The 5 year hit 1.51% this week. While demand for the USD and Treasuries have soared, the US government has nearly tripled its long term debt from $4 trln to $11 trln in 2008.
NEXT WEEK
Tuesday we start off with Pending home sales. Wednesday wholesale Inventories and the Budget deficit. Thursday, the weekly Unemployment claims, the Trade deficit and the Import price index. On Friday, the PPI, Retail sales, a Consumer sentiment reading and Inventories. As for the FED, two speeches on Monday. One from FED governor Kroszner in Switzerland, and the other from FED vice chairman Kohn in DC at 11:00. Then on Thursday the Flow of funds Accounts of the US. Also expecting some sort of temporary bailout package for the automakers early in the week. Best to your week!
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(As I mentioned, the above is only part of his comments that you can see posted at his site.)
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