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Crucial, yet inevitable, Inflection points appear still far away for the US economy, but appearances can be deceptive!

intermarket analysis

The S&P 500 is almost setup for a correction after having traversed through a 5 wave Elliott wave primary wave progression.  It was in 2013 when the stock index crossed over the dow jones commodity index that actually marked the expansionary cycle in the US economy.  There is still some downward movement to be expected in the commodity index as the yields on 10-year US treasury yield seem to be stabilizing with an upward bias.  Thus, if bonds are to act as leading indicators of the stock market, at least the 10-year Treasury note yield is displaying that the bonds upward trajectory could begin to stall.  Looking back to 2010, the bond market lead the stock market by a short duration but the market participants were not convinced that the S&P 500 had actually commenced its secular bull run.  Thus if the lag between the S&P 500 and the bond market is minimal there is always a possibility the stock index comes under renewed pressure as the yields face lesser headwinds and making a market transformation from bonds to stock.

Obviously, the stock market would make one final gasp for the upside.  The only missing part of the jigsaw puzzle appears to be when the commodity market acquires a bullish stance.  The Dow Jones commodity index is poised for one last correction to the downside, before possibly a bull run can come into play.  This would obviously seal the fate of the stock market and most surely the overly strong dollar that has been the mainstay of the US economy for the last couple of years.  For example, if we review the MACD, we see highly overbought conditions, which would exert a downward pressure on bonds and ultimately stocks.  In addition, the term structure bias is not in favor of a thumping US economy but rather a slowdown is on the horizon as the term structure bias echoes bearishness.  The market is set up for a transformation, but the question is when the hour will be upon the financial market for this phenomenon to manifest with clarity!

intermarket analysis

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