(TY) Wave Count, Fibs, Waning Momentum Warrant T-Note Peak/Reversal Focus

By: RJO MRTJuly 21, 2011 8:22am CDT 197


Focus on the recent 124.07-area support as a tight but perhaps vital risk parameter remains urged as what could be a relatively obscure and short-term momentum failure below this level and condition could by the early spring board to a peak/reversal threat of major proportions. The 240-min bar chart below details the importance of this support level, the break of which would arguably break this month's uptrend and define whatever high is rejected at that point- 125.055 currently as the end of at least the latest portion of this year's bull from 01-Jul's 121.225 low. But as we'll explain below, such a momentum could also mean that that 125.055 high is the end of this year's entire bull trend from 117.22 and start of a major reversal lower that is unlikely to unfold without, we believe, perhaps a significant move higher in equities.


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The 240-min close-only chart above shows the market on the brink of breaking last Thur's 124.10 corrective low close that would expose this month's rally as a complete 5-wave Elliott Wave sequence as labeled. Crucially, this month's textbook 5-wave rally is arguably the completing 5th-Wave of an equally textbook but much larger-degree 5-wave sequence up from 08-Feb's 115.05 low labeled in the daily close-only chart below. Granted, an appropriately larger-degree momentum failure below 01-Jul's 121.31 corrective low is needed to confirm such a larger-degree momentum failure needed to conclude a major reversal lower. But we believe a shorter-term momentum failure below the 124.07-to-124.10-area combined with some ancillary momentum and Fibonacci factors discussed below would be sufficient to move to at least a neutral-to-cautiously-bearish policy if the market breaks 124.07 and then subsequently sustains these losses below what would be a key 125.06-area resistance.


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The weekly chart of T-Note futures above shows the dominance of this year's major uptrend as well as the developing bearish divergence potential resulting from the clear slowed rate of ascent over the past month and a half. The fact that this year's relapse in 10-yr rates, shown in the weekly close-only chart below, has thus far held at the exact (2.86%) 61.8% retrace of Oct'10 - Feb'11's 2.39% - 3.64% rise in rates really highlights the current levels and (waning mo, Fib, and complete wave sequence) conditions as potentially hugely pivotal IF the market can simply provide some evidence of a trend break. And we believe such evidence will start with a short-term bearish divergence in momentum below 124.07.


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Finally, the daily log close-only chart of 10-yr yields below shows the developing support around the 2.87% area. But more importantly, this chart shows the importance of 30-Jun's 3.17% corrective high and resistance. This 3.17% level may be this market's single most important technical level, coinciding with 01-Jul's 121.31 daily low close in the Sep11 futures contract, the market needs to break to expose a move up in rates that could be extreme and reflective (finally) of an expanding economy. Stock bulls would do well to keep this level and requirement in mind before re-committing funds to the stock market.

In sum, against a developing backdrop of waning upside momentum on a longer-term basis, potentially complete Elliott Wave sequence and a key Fibonacci retracement level, we believe an admittedly short-term momentum failure below 124.07 in the Sep11 futures contract will define Mon's 125.055 high as one of developing importance and possibly the start of a peak/reversal process that could be major in scope. Upon such a sub-124.07 failure, traders of all risk profiles are advised to move to a neutral-to-cautiously-bearish policy with subsequent strength above 125.06 required to negate this call.


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