You Can't See Em, But They're There - T-Note Vigilantes

September 9, 2016 3:26AM CDT

Over 30 years ago the T-bond vigilantes- bond market investors- held sway over Federal policymakers and their battle against inflation.  It was the MARKET dictating matters, not the Fed, let alone economic pundits.  Coming from a technical analysis perspective, we believe that this is what EVERY market does in its own self-policing, global-universe-of traders-price-discovery way.  In 19-Aug's Technical Blog commenting on that day's break of 15-Jul's 130.305 initial counter-trend low close, we raised the issue that perhaps the next generation of T-Note vigilantes is suggesting that a Fed tightening is coming sooner rather than later, despite recent economic news that some economists interpret as deferring a tightening.

Tue's news prompted a short-term rebound that clicked our short-term risk parameter at 131.00 as updated in just Wed's Technical Blog .  Just a day later the market relapsed once again below Mon's 130.19 minor corrective low that rendered the late-Aug/early-Sep recovery attempt from 130.105 to 131.18 as a 3-wave affair as labeled in the 240-min chart below.  Left unaltered by resumed strength above 131.18 , this 3-wave pop is considered a corrective/consolidative structure that warns of a resumption of Jul-Aug's broader developing downtrend that preceded it.  In this regard 131.18 becomes our new short-term risk parameter from which a resumed bearish policy and exposure can be objectively rebased and managed.

10 yr Treasury 240 min

10 yr Treasury Daily

The daily close-only chart of the Dec T-Note contract above shows yesterday's close below 02-Sep's 130.25 low that it needed to sustain gains above in order to maintain a more immediate bullish count.  It's failure to do so renders the recent recovery attempt as a 3-wave and thus (developing bear market) corrective structure.  The fact that this rebound stalled within a 32nd of a Fibonacci minimum 38.2% retrace of Jul-Aug's 133.00 - 130.13 decline would seem to reinforce this bear market correction count that warns of a resumption of Jul-Aug's downtrend to new lows below 130.13.

Such resumed weakness is critically important from a long-term perspective as the weekly chart below shows the general 130.00-area (plus/minus a 1/2-pt) as a hugely important area and condition around which this market has toggled for the past two years.  And major move south requires the clear break of this area AND trendy, sustained losses thereafter.  Working backwards from such a bearish scenario, recent and current recovery attempts, by definition, must be labored, corrective events.  Yesterday's relapse has just defined the recent late-Aug/early-Jul recovery attempt as just such a correction.  And this follows the second-half of Jul's 130.30 - 132.03 correction, so the early seedlings to a broader bearish prospect are being sown.  And most importantly, we can state with confidence and specificity that the market has identified 07-Seps 131.115 corrective high close ( 131.18 intra-day high) and 29-Jul's 132.035 high as our new short- and longer-term risk parameters from which a bearish policy can be objectively rebased and managed.

10 yr Treasury Weekly

Broker Daily

From a 10-yr yield perspective, the daily (above) and weekly (below) log scale close-only charts show the 1.64%-to-1.74%-range as the absolutely huge resistance this market needs to break to reinforce a base/reversal environment in yields that could be generational in scope. As a result of yesterday's rate rebound above 02-Sep's 1.597% high however, the market has rendered the recent relapse another 3-wave and thus corrective affair within a developing uptrend from 08-Jul's historical 1.356% low. A rate relapse below at least Tue's 1.53% corrective low is minimally required to threaten a count calling for higher rates straight away.

These issues considered, a bearish policy remains advised for longer-term players with strength above at least 131.18 and preferably 132.04 required to threaten or negate this call.  Shorter-term traders whipsawed out of bearish exposure are advised to first approach recovery attempts to 130.24 OB as corrective selling opportunities with a recovery above 131.18 required to negate this call.

Broker Weekly

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