Since January I have been recommending long positions in Treasuries trading vehicles with a focus on the 20 Year+ Bond ETF, TLT. Those positions performed very well, particularly relative to stocks, but it is time to exit and change orientation once again on Treasuries. During the period that I was bullish on Treasuries I was neutral to bearish on stocks, calling for a corrective period. January to May 2014 was indeed a largely corrective for stocks, but that has come to an end and a new bull leg is now in progress. That should correlate well with renewed bearishness for Treasuries and bonds in general.
From March-May US stocks transited a Wave 4 of (1) corrective phase. In SPX and big caps this showed itself in the form of a shallow ABCDE triangle. In the rest of the market, as illustrated by Wilshire 4500 and Russell 2000, it took the shape of a steeper falling triangle formation. That period ended on May 22nd and a new bull phase began. There are many well founded reasons to think that this current rally in US stocks is the 5th leg of the first wave of the new secular bull market that began in November 2012. There appear to be targets in the SPX 2100 area that would complete Wave (1) of the bull market, setting up a larger scale correction. Currently I am long IWM from $112.60 following a minor wave 2 correction.
There are good reasons to think that Emerging Markets and BRIC stocks completed long term bear markets at the early March lows. Recent breakouts may represent the initial moves of a bull market and corrections to retest those breakouts may represent excellent long entry points. In addition, it appears that Nikkei may have completed a Wave (2) correction recently and may be set to begin a Wave (3) bull market that will smash through long term bear market resistance levels.
Commodities are correcting, but I'm not anxious to buy yet. Base Metals appears to be the commodities sector with the best overall technical setup and the best upside potential. But I am taking a wait and see attitude. Crude Oil remains mired in a complex triangle and is basically untradeable.
Gold is likely to rally to another lower high soon, representing the final move in a long term B Wave ABCDE triangle continuation pattern, setting up a large C wave decline to the $900 area. An excellent shorting opportunity may present itself soon.
My longer term view is that the final, 5th wave of the bull market that started with the 1932 bottom is in progress. There are rather clear projections to a top in the Dow 18,800 area sometime late 2015 or early 2016. I'm not disposed towards an uber bearish worldview, but that's what the charts seem to be telling me. We'll just have to see what the total technical picture tells us when we get there. In the meantime, we should see some kind of 5 wave sequence, with the first of those wave completing in late summer to early fall of 2014 and the corrective second wave unfolding over the last quarter of 2014 and the first quarter of 2015.
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