TREASURIES AND DOLLAR LEAD SAFE-HAVEN TRADE -- GOLD FIRMS DESPITE THE PLUNGE IN STOCKS -- LONG-TERM RATES REVISIT 2008 LEVELS -- ELLIOTT WAVE COUNT POINTS TO 3 OF 3 FOR S&P 500 -- HAPPY THANKSGIVING!

TREASURIES AND DOLLAR LEAD SAFE-HAVEN TRADE... Link for todays video. November is turning out to be as risk-off as October was risk-on. Stocks, the Euro and oil surged in October as the financial markets embraced risk. Confidence started to waver at the end of October and turned completely risk-adverse the last few weeks. Chart 1 shows the performance for five intermarket ETFs in October. During this risk-on run, the S&P 500 ETF (SPY) was up over 14%, the Commodity Index Fund ($DBC) was up over 10% and the Gold SPDR (GLD) was up over 7%. In contrast, the US Dollar Fund (UUP) declined over 5% and the 20+ year Bond ETF (TLT) was down almost 9%. Stocks, commodities and gold were negatively correlated with the Dollar and Treasuries.

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Chart 1

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Chart 2

Flash forward to November and a different picture emerges for these five. In fact, chart 2 shows just how the tables have completely flipped. The 20+ year Bond ETF is up over 10% and the US Dollar Fund is up over 5%. On the downside, the Gold SPDR is down over 3%, the Commodity Index Fund is down over 5% and the S&P 500 ETF is down around 9%. Treasuries and the Dollar advanced at the expense of gold, stocks and commodities. I would expect the Dollar and Treasuries to continue their negative correlation with stocks and commodities. Gold, however, could be the wild card.

GOLD FIRMS DESPITE ANOTHER PLUNGE IN STOCKS... I showed a long-term chart of Spot Gold ($GOLD) on Monday and noted that the long-term trend remains up. The short-term and medium-term trends were down though. These smaller trends have yet to reverse, but the Gold SPDR (GLD) is showing signs of firmness on Wednesday. Chart 3 shows GLD reversing at the 61.80% retracement in early November and breaking wedge support. Despite this breakdown, GLD is finding support in the 162-165 area the last two days. Support in this zone stems from broken resistance and the November 1st low. Also notice that stocks moved below Mondays low today, but the Gold SPDR held above Mondays low. Gold could be getting a mind of its own.

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Chart 3

LONG-TERM RATES REVISIT 2008 LEVELS... Bonds and interest rates move in opposite directions. Yields fall when bonds rise and yields rise when bonds fall. Treasuries have been rising sharply the last four weeks and this means yields have been falling sharply. We also know that Treasuries and stocks are negatively correlated. This implies that stocks and interest rates are positively correlated. Chart 4 shows the 10-year Treasury Yield ($TNX) breaking below 2% this month. $TNX has been falling since February and broke triangle support in the summer. Broken support in the 2.4% area turned into resistance and held with the October high. This is now the level to beat. We cannot expect a meaningful bottom in stocks as long as long-term rates are moving lower.

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Chart 4

Chart 5 shows the 30-year Treasury Yield ($TYX) moving below 3% (30) this month. The yield is back to 2008 levels and falling. As with 2008, plunging yields are bearish for stocks. It means Treasuries are surging, which reflects a flight-to-safety, recession fears or both. These yields are near their 2008 lows, but stocks are not even near their 2010 lows. This implies that stocks have further room to fall. Before leaving this chart, notice that the 30-year Treasury Yield reversed course four months before the S&P 500 bottomed in March 2009.

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Chart 5

ELLIOTT WAVE COUNT POINTS TO 3 OF 3 FOR S&P 500 ... Chart 6 shows my Elliott Wave count put forth in the Market Message on November 2nd (blue arrow). Keep in mind that this chart shows the S&P 500 as a 5-day EMA to reduce noise and smooth fluctuations. As of November 2nd, the market had just experienced the massive October surge. I suggested that Wave-b down and Wave-c up were still to come. This abc zigzag would then complete Wave-II or Wave B. Regardless of which, the outlook was then for a decline to the 1000 area in 2012. While this count is still possible, I am having my doubts after the decline the last few weeks.

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Chart 6

Elliott Wave is a bit subjective and a bit objective. As with technical analysis, which is a mix of art and science, there are always going to be opposing counts. When making a wave count, I start by looking for the obvious features. Three jump out on this chart. First, the decline in late July and early August is clearly the most significant move of the last 11 months. Second, the October advance was exceptionally sharp. Third, the decline from May to early October formed a five wave sequence. With this information, we can begin to make a wave count going backwards and forward.

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Chart 7

We start by labeling Wave-3. This is the big impulse move from late July to early August. This means Wave-1 and Wave-2 are before, while Wave-4 and Wave-5 are after. Filling in the blanks, there is clear five wave sequence. Notice that Wave-2 is sharp and retraces almost all of Wave-1. Also notice that Wave-4 is flatter and forms more of a consolidation. These characteristics are typical for second and fourth waves. Second waves are often sharp and strong counter-trend moves. Fourth waves are often flat consolidations or weak counter-trend moves.

When studying this chart and considering the characteristics of second waves, it looks like the sharp October rally could be a Wave-II, similar to the late June-early July bounce. I am also struck by the sharpness of the decline since late October. This is leading me to believe that we may be in Wave-3 of Wave-III, which is quite bearish. Such a count projects a move below the early October low to complete Wave-III. Moreover, this Wave-III will sub-divide into five waves. This means we still have to complete Wave-3 and then have Wave-4 and Wave-5.