(TY) Resumed 10-Yr T-Note Rally Defines New S-T Risk Parameter On Continued S&P Losses

By: RJO MRTNovember 23, 2011 8:54am CST 7601


Technicals, November 23, 2011; 7:45am

With overnight's clear break above the 131.00-area that has capped the Dec 10-yr futures as resistance over the past two weeks, the market has resumed its broader recovery from 27-Oct's 127.06 low. As a direct result of this strength, the market has defined yesterday's 130.10 low as the latest corrective low and tightest risk parameter it now is required to fail below to jeopardize the impulsive integrity of a more immediate bullish count and resurrect a peaking/reversal threat. In lieu of such sub-130.10 weakness, traders are advised to first approach interim dips as corrective buying opportunities ahead of a further assault on 23-Sep's pivotal 131.30 high.


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Despite overnight's gains however, the daily chart below shows the market to be in what could be a very precarious position near the extreme upper recesses of the past quarter's range amidst upside momentum that's arguably been waning for the entire month. This said, weakness below at least the 130.10 corrective low mentioned above and preferably below 13-Nov's 129.19 corrective low is required to confirm the bearish divergences in momentum needed to threaten the clear and present uptrend and expose a larger-degree correction or reversal lower.


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On a 10-yr yield basis shown in the daily log close-only chart below, the resumption of late-Oct/Nov's decline is clear, leaving Fri's 2.01% level as the latest corrective high and the risk parameter the market needs to recoup to break the downtrend in rates and expose upside pressure that likely would be the result of an improvement in either U.S. economic and/or political issues and/or good news on the Eurozone debt crisis.

In sum, a cautiously bullish policy remains advised in the Dec11 T-Note futures with weakness below 130.10 required to threaten this view and a failure below 129.19 required to negate it to the point of moving to a neutral/sideline position. In lieu of such weakness, further and possibly accelerated gains should not surprise with 23-Sep's 131.00 high the next pertinent upside hurdle.


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Overnight's bid to the 10-yr T-Note is a direct result of overnight's continued losses in the S&P market. The 240-min chart of the Dec E-Mini S&P below details these latest losses that define yesterday's 1199 high as the latest corrective high and tightest risk parameter this market is now minimally required to recoup to confirm a bullish divergence in short-term momentum needed to stem this slide and expose at least an interim corrective pop or, quite possibly and optimistically, a resumption of Oct's rally. In lieu of at least such 1199+ strength, further and possibly accelerated losses remain expected.


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The daily log scale chart above shows the extent of this month's clear break of Oct's uptrend. Thus far, this relapse has retraced 50% of Oct's 1068 - 1289 rally. But as such merely derived technical levels like Fibs, Bollinger Bands, trend lines and moving averages mean absolutely nothing without an accompanying bullish divergence in momentum- which requires a recovery above at least 1199 in this case- traders are urged not to look at this 50% retrace level as anything more than a reference point. It is NOT in any way considered a support level.

This acknowledgement is critical to the long-term and potentially dire forecast that Oct's admittedly sharp recovery attempt is merely a correction of May-Oct's initial phase of a peak and reversal environment that could be major in scope, calling for an extensive, even relentless resumption of this year's earlier decline to new lows below 04-Oct's 1068 low. But if such a broader bearish count is the correct call, then somewhere along the line this market should behave like it and not only sustain new losses below each prior corrective high, but be increasingly obvious with its downside demolition.

In sum, a bearish policy remains advised with strength above 1199 required to warrant shorter-term traders with tighter risk profiles to take defensive measures. From a longer-term perspective however, we believe a major bearish threat will remain until or unless this market can recover above 14-Nov's 1271 high needed to confirm Nov's sell-off attempt as a 3-wave and thus (bull-market) corrective affair.


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