EUR 270.00 For Business Accounts Only

The EW-Navigator - December 2019 - Benchmark Indices set for Corrective Downswing – End of Technical Recession by Early 2020 – Banking Sector Revival – US$ Dollar resumes 7.8-year cycle downtrend

Bank of America/Merrill Lynch’s latest Global Fund Manager Survey identified a huge surge higher for stock market optimism during the last month. The survey noted that improving growth prospects, driven in part by lower interest rates and increasing optimism that the US and China are nearing a phase 1 trade deal have injected vitality into risky assets and an unwinding of safe-haven assets. The allocation to global equities climbed 20 percentage points month on month to net 21% overweight, the highest level in one year.

That surge in just one month is really important because it contrasts to the past six months where money market funds attracted $322 billion of inflows, the largest flight to safe assets since the second half of 2008.

This change to risk-on strategies has been reflected in gains in the benchmark S&P 500, to new all-time-highs – but is this a sustainable uptrend or the end of an existing one? This month’s report updates the current pattern development from August’s lows in both U.S. and European indices, highlighting some short-term downside risk whilst confirming directional trends and price amplitude levels into year-end and beyond. It’s an exciting time at this stage of our secular-bull ‘Inflation-Pop’ uptrend!

There’s definitely some downside risks across various correlated asset classes that we address in this month’s report. For example, US long-dated yields are still trending lower within a five wave impulse structure from last year’s highs. The US10yr and European DE10yr yields have both undergone corrective 4^th wave rallies from September’s lows but ending only recently, in early-November. They are both heading lower now – so what impact does this have for equities/stock indices? – this month’s report explores these correlations, putting together the differing pieces into constrictive alignment.

This month’s report also takes an updated look at the 10yr TIPS Inflation Rate, its progress of dis-inflation over the past 18-months and its relationship to the ‘Inflation-Pop’ cycle. Charts project trend, amplitude, and timing over the next months and its path over the next few years. New analysis/charts also projects Elliott Wave trends for the US10yr TIPs yield which holds a fascinating account of what inflationary pressures exist over the next few months and beyond.

In the Currency/FX section of this month’s report, we update the current position of the benchmark US$ dollar index together with the Euro/US$, Stlg/US$, US$/Yen, AUD/US$, NZD/US$, US$/CAD and the US$/CNY.

The US$ dollar index 7.8-year cycle is engaged in a downtrend from its origin/peak of early-2017. The counter-trend rally beginning in Feb.’18 ended last month, in early-October placing significant emphasis to the downside. Recent dollar rallies have coincided with trade-tariff phase 1 optimism but from an Elliott Wave perspective, declines ahead are imminent. Does that translate into a breakdown in the U.S./China trade deal? – it certainly could. We examine the risks and highlight critical levels across the differing currencies together with targets over the next several months.