As always, this year’s Outlook & Forecasts for the next twelve months are created applying the Elliott Wave Principle for the assessment of pattern and price amplitude, also Cycle Analysis for the timing of the larger trend reversals. Not always do they jive, but they seldom contradict and more often, provide valuable insights into one or two variations of a similar theme within a seemingly unlimited amount of possibilities.
Even though this report outlines the price expectancy of all asset classes for 2012 it will also illustrate how this coming year fits together into the larger picture. The reasoning behind this is to move away from the ‘black-box’ stereotype and show you why the results relate to their specific outcome. Overall, this report deals with two different time-periods – long-term and inter-mediate term. Long-term refers to the uptrends from the Great Depression of 1932 onwards and inter-mediate term for the coming year and into 2013.
I have chosen a single contract as a benchmark to illustrate the overall trends for stock indices, interest rates and currencies – the S&P, US30yr yield, US$ dollar index respectively but have explained specifics for each of the commodities although you should be able to recognise a general theme for these too.
To set the scene, the first chart represents the positive correlations of different asset classes. This is an important chart because it suggests an underlying force that effects all in much the same way – only amplitudes differ and it is these that create slightly different Elliott Wave labelling unique to each contract. It remains informative because if a large price trend is expected, it will naturally reverberate through the entire list.
This report again includes many cycles covering different time spans. To get the most out of this analysis, remember two things – the red cycle line measures time, not necessarily price amplitude and so be careful not to interpret this in terms of price expectancy – that dimension is attained using the Elliott Wave Principle and our proprietary application for using Fibonacci Price Ratios. Some cycles overlay the price in order to visually accentuate the timing of peaks and troughs, whereas for interest rates and gold, the long-term cycles are best used in a non-overlay format and appear at the bottom of the chart. Once again, it is important to remember that two time-periods are described and these must be singularly interpreted with corresponding time-periods of Elliott Wave analysis. Inter-mediate term composite cycles that combine various time-interval components offer guidance to how we can expect 2012 to begin.
Highlights
STOCK INDICES: Shock-Pop-Drop: the October ’08/March ’09 lows that formed following the financial sub-prime meltdown marked just the interim phase of adjustment to the preceding 72+/- year expansion phase that began from the Great Depression lows of 1932. The balancing phase is ultimately expected to unfold into three sub-sequences – the first was characterised by a ‘shock’ that produced the lows in Oct’08, the second is currently in progress referred to as the ‘inflation-pop’ that is destined to pull some stock indices (and commodities) briefly into new record highs sometime into the year 2013 and the third will be a cataclysmic ‘drop’ in price values that engulfs the entire financial system across the world with cycle lows scheduled to complete into the year 2018. Within the ‘inflation-pop’ sequence, the coming year indicates a bullish start with an upside appreciation of approximately +20% per cent from current levels into the first quarter of 2012. Precise upside targets have been measured across various indices. A crossroads will then be reached – either a continuation of the existing advance or a reversal signature that precipitates a six month sell-off that sheds -30% in value.
INTEREST RATES: A 60 year cycle dominates the value of interest rates, measured low-to-low. Major lows occurred in the late 19th century with a 60yr peak recorded in 1920 and 1980/1. The next low in the 1950’s means adding sixty years to establish the next major low – that is now! The short-end of the interest rate curve is expected to remain static as central banks and governments manipulate the rate to ensure it remains low – at least for the time being. But the long-end of the curve is seen as releasing ‘pressure’ with dramatic upside yield potential. Our benchmark US10yr yield begins the year heading lower, but is soon expected to turn around to begin a new thirty year uptrend. Europe remains a mixed picture but the benchmark German 10yr yield is similarly poised to complete its thirty year down cycle and begin turning upwards.
CURRENCIES: The long-term downtrend for the US$ dollar began from the record high recorded in March 1985 at 164.72 – it has since declined taking the form of a counter-trend pattern, the balancing phase of the preceding appreciation period that began after the American civil war in 1864. It is not scheduled to complete until mid-2020’s. Meanwhile, the inter-mediate term cycle depicts the US$ dollar resuming a counter-trend advance that began from the March ’08 lows during the coming year but perhaps beginning weaker until the end of the Q1 ‘12, synchronizing its action with an expected advance for stock indices. The Euro/US$ weakens during 2012 but is a mirror image of the US$ dollar – this retains possibilities to strengthen into the first quarter but then declining afterwards until year-end.
COMMODIITES: The long-term uptrend remains intact for gold with ultimate upside targets measured to US$2450.00+/- but not scheduled for completion until the broader ‘inflation-pop’ cycle ends in 2013. The outlook for 2012 describes a trading range developing with the high at the Sep.’11 high of 1921.50 and the low established at either the subsequent extreme of 1532.20 or a little lower to 1405.26. Silver is likewise pitched into a trading range with its high at 49.91 and the lowest extremity at either the Sep.’11 low of 26.02 or 24.68. The larger uptrend remains intact with targets to 89.17 scheduled for the year 2013. Crude oil ended its ‘orthodox’ long-term uptrend in July 2008 at 147.27 but like many commodities, its counter-trend balancing phase is taking the form of an expanding flat pattern that allows a new higher high during the ‘inflation-pop’ period with upside targets to 183.00+/-. The first quarter of 2012 is expected to pull prices higher but remaining below the May ’11 highs before a downswing unfolds in the several months that follow. Downside projections estimate levels towards 60.00+/-. Base metals continue to provide valuable insights into price direction and amplitude. Like crude oil, copper completed its orthodox long-term uptrend into the May ’06 high with the counter-trend phase as an expanding flat that allows a new record high scheduled into 2013. Lead and nickel price activity supports this forecast and are included in this report.
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