US T Notes 10 Y – 17/4

T-Note Technicals Constructive Above 124.20; Key Base/Reversal Confirmed in Eurodollars

Posted on 4/17/2017 8:29 AM by Dave Toth

JUN 10-Yr T-NOTES

Last week’s break above the previous week’s 125.12/.18-area resistance reaffirms the developing uptrend and leaves 10-Apr’s 124.20 low in its wake as the latest smaller-degree corrective low the market is now minimally required to fail below to arrest the uptrend and expose at least an interim correction.  In lieu of such sub-124.20 weakness the intermediate-to-longer-term trend is up and should not surprise by its continuance.  In this regard 124.20 is considered our new short-term risk parameter to a still-advised bullish policy with former 125-1/2-area resistance considered new near-term support.

The daily close-only chart above shows the developing POTENTIAL for a bearish divergence in momentum but only proof of weakness below at least 07-Apr’s 124.26 corrective low close and/or an intra0day failure below 124.20 will CONFIRM this divergence to the point of non-bullish action.  The analogous corrective high on a daily log close-only basis of 10-yr yields below is 07-Apr’s 2.382% corrective high.  In lieu of such 2.382%+ yields the trend is down and should not surprise by its continuance.

On this yield basis the market’s clear failure below 24-Feb’s 2.30% corrective low exposes the entire rate increase from 08Jul16’s 1.356% low to 13-Mar’s 2.626% high as an arguably complete 5-wave Elliott sequence.  The market has just eclipsed a Fibonacci minimum 23.6% retrace and may sight a 38.2% correction to the 2.04%-area, but even this is minor relative to the magnitude of Jul’16 – Mar’17’s entire 93% increase in 10-yr rates from 1.356% to 2.626%.  Once again and while clearly acknowledging the prospect for further correction lower in rates, the extent and trendy, impulsive nature of the 2016-17 increase in rates is consistent with what we believe is a new secular move HIGHER in rates that could last a generation after reversing 35 years of falling rates.  In this very long-term regard the past month’s rate relapse and whatever further concessions the market has in store for us in the weeks or months ahead is advised to first be approached as a corrective selling opportunity in contract prices.

The past couple weeks’ gains certainly reinforce a base/reversal-threat environment from the 122-handle-area that first became prominent as support in 4Q13.  But on the heels of the second-half of 2016’s meltdown, the recovery attempt thus far from 15Dec16’s 122.145 low still falls well within the bounds of a bear market correction.  Nonetheless and until this market fails below at least 124.26 the trend is up and should not surprise by its continuance or acceleration.  Per such a bullish policy remains advised with a failure below 124.26 required to move to the sidelines.  The market’s upside potential remains indeterminable.

DEC17 EURODOLLARS

The market’s failure today to sustain Feb-Mar losses below our longer-term risk parameter defined by 08-Feb’s 98.555 larger-degree corrective high:

  • confirms a bullish divergence in daily momentum
  • identifies 15-Mar’s 98.335 low as the END of a 5-wave Elliott sequence down from 06Jul16’s 99.235 high and
  • renders the historically bearish 9% reading in our RJO Bullish Sentiment Index as a key contributing factor

to a major base/reversal process.  This very unique and powerful combination of technical facts exposes a major correction of the 8-month decline from 99.235 to 98.335, the 38.2%, 50% and 61.8% retraces of which cut across at 98.68, 98.785 and 98.89, respectively.  While at least 07-Apr’s 98.44 smaller-degree corrective low and short-term risk parameter holds, further and possibly surprising gains are expected.

In sum, a cautious bullish policy remains advised for shorter-term traders with a failure below 98.44 required to step aside.  Longer-term players have been advised to neutralize all previously recommended bearish exposure and are further advised to establish a cautious bullish policy on a setback to the 98.50-area with a failure below 98.44 required to move to the sidelines.  While at least 98.44 holds and preferably 98.33, further lateral-to-higher correction that could span weeks or even months is expected.

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