The daily log scale chart of the E-Mini S&P 500 market below shows its current assault on the pivotal 1230-area upper boundary to a range that has constrained it over the past two months. A breakout above this range arguably breaks this year's long-term downtrend and could expose a resumption of the secular bull. And perhaps most importantly, yesterday's smart recovery reinforces the 1185 level as a key risk parameter this market now is required to fail below to defer or threaten a bullish count.
Against this developing bullish backdrop in equities and given the very negative correlation between stocks and 10-yr T-note prices shown in the daily chart above, we believe the T-note market's (thus far) rejection of former support from 28-Sep's 129.06-area that we have defined as a key new resistance candidate contributes to a broader developing bear trend. Additionally, the 240-min chart below clearly shows that, thus far, the past week's recovery attempt has unfolded into only three waves as labeled. Left unaltered by new highs above yesterday's 129.10 high, this recovery attempt is considered a corrective affair consistent with the broader developing bear trend that is expected to produce new lows- and potentially significant losses- below 12-Oct's 127.16 low.
The weekly chart below shows the very unique combination of a confirmed bearish divergence in weekly momentum amidst a recent 77% level in the Bullish Consensus measure of market sentiment (www.marketvane.net) that is the highest level of bullish sentiment posted since that that accompanied Nov'10's major peak and reversal.
These issues considered, traders are advised to move to more aggressive bearish exposure from current 128.11-area prices with strength above 129.10 required to threaten this view enough to warrant moving to a neutral/sideline position. In lieu of at least such 129.10+ strength, an eventual break of last week's key 127.16 low is expected and could produce steep, relentless losses thereafter.
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