(ES) Payrolls Reinforce S&P Technical Strength, Threaten T-Notes With Momentum Failure

By: RJO MRTFebruary 3, 2012 9:02am CST 7719


Technicals, February 3, 2012; 8:35am

Today's clear breakout above recent 1327-to-1330-area highs and resistance detailed in the 240-min chart below chalks up last week's short-term bearish divergence in momentum as merely a corrective dip and reinstates the broader developing bull trend. As a direct result of this morning's strength, the market has defined yesterday's 1317 low as the latest corrective low and tightest risk parameter it now is minimally required to fail below to even defer a bullish count, with former 1330-to-1327-range resistance considered new near-term support.

Per these constructive developments, a full bullish policy and exposure are advised for all traders (long- and short-term) with weakness below 1317 required to warrant defensive measures by shorter-term traders with tighter risk profiles.


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This week's resumption of the broader advance from last Oct's 1068 low is shown in the daily log chart above and defines Mon's 1296 low now as the latest corrective low this market is now required to fail below to confirm a bearish divergence in momentum of a scale sufficient to threaten the broader advance. Given the market's encroachment on the extreme upper recesses of the past year's range amidst bullish sentiment levels that are nearing those that accompanied May'11's major peak and reversal shown in the weekly log chart below, such a risk parameter may come in quite handy if this market proves incapable of sustaining these gains "up here" as a broader bullish count requires.

In sum, a bullish policy and exposure remain advised with weakness below 1317 required to defer this count in favor of an interim corrective dip, and a failure below 1296 required to threaten this view enough to warrant neutralizing all bullish exposure.


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It's not surprising that the bullish payroll report and consequent strong performance in equities today is putting upward pressure on interest rates. Indeed, the 240-min chart below details today's failure below our short-term risk parameter at 131.22 that confirms a bearish divergence in short-term momentum. This weakness clearly defines 31-Jan's 132.11 high as the 5th-wave end to the rally from 23-Jan's 129.26 low and the new short-term risk parameter from which all interim non-bullish decisions like long-covers and cautious bearish punts can now be objectively based. Minimally, we anticipate further correction of this 129.26 - 132.11-portion of the secular bull trend in T-Note prices. At most, today's break could be the embryonic stage to a peak/reversal process that could become legendary.


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Just a quick glance at the daily Mar T-Note futures contract above is needed to conclude that today's relapse is grossly insufficient to conclude anything but an interim corrective dip within the secular advance. Indeed, the market remains above virtually all former resistance from the general 131-1/2-area that contained this market for nearly six months and that now has got to be considered new support. And while further erosion to the 130-handle would be the next evidence of a broader peak/reversal threat, clearly, 23-Jan's 129.26 corrective low remains the gateway to any major peak/reversal in the T-Note market that we'd expect to come from a growing economy and continued strong equity prices. This key 129.26 level in T-Note futures equates to a 2.06% yield level on a daily log close-only basis shown below.


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The secular advance in T-Note prices is clear in the weekly chart below. Threatening this advance is the RSI measure of momentum's warning that the rally is losing strength as well as the highest (77%) reading in the Bullish Consensus measure of market sentiment (www.marketvane.net) since those that have accompanied each of the past two major highs and relapses. And it is these two long-term factors that should alert us to the possibility mentioned above that today's break- as admittedly minor as it is- could be the very first step in a major peak/reversal process. But if this is the case, the market now needs to do a few things:

  • stay below 132.11
  • move lower in a trendy, impulsive manner and, most importantly,
  • labor in 3-wave, corrective recovery attempts.

In sum, and although the market has yet to fail below a longer-term risk parameter pertinent to long-term traders, traders of all risk tolerances are advised to move to a neutral-to-cautiously-bearish policy from current 131.16 prices. Strength above 132.11 is required to negate this call and reinstate the secular advance. Interim recovery attempts are advised to first be approached as corrective selling opportunities with protective buy-stops at 132.12.


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