S-T Mo Failure Defers T-Note Bear

October 13, 2016 3:30AM CDT

While we identified 06-Oct's 130.125 high as our short-term risk parameter to a bearish policy in Tue's Technical Blog , yesterday's break to new lows for this month's slide left last Fri's 130.07 high as an even tighter corrective high and risk parameter the market needed to sustain losses below to maintain a more immediate bearish count.  The 240-min chart below shows that the market has recovered above this 130.07 level needed to CONFIRM a bullish divergence in momentum that defines yesterday's 129.17 low as the END of the decline from 30-Sep's 131.235 high and start of a suspected interim corrective rebound.  In this regard 129.17 becomes our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.

10 yr Treasury 240 min

As recently discussed, this week's earlier break below 13-Sep's 129.315 low shown in the daily close-only chart below reinforces our broader bearish count.  This short-term bullish divergence in momentum is INsufficient to negate this broader bearish count.  But it's certainly capable of warning of another interim corrective rebound.  Indeed, since 05-Jul's high this market has had a poor history of sustaining breaks below key technical levels ahead of frustrating, whipsaw corrective rebounds.

While yesterday's 129.17 intra-day low holds, we believe another such rebound lies ahead and will offer a preferred risk/reward condition from which to re-establish core bearish positions for the long-term.  And from such a longer-term perspective 29-Sep's 131.18 high close remains intact as our key long-term risk parameter the market needs to recoup to really threaten our long-term count that contends the market is in the early stages of a reversal lower that could be generational in scope.

10 yr Treasury Daily Broker Daily

From a 10-yr yield perspective the daily log close-only chart above shows the market has recovered above a TON of former support from the 1.66%-to-1.70%-range from Feb-May this year that should have contained this market as new resistance if the 35-year secular decline in rates was still intact.  Perhaps the market is still acknowledging 19-Feb's 1.74% low and former support as a long-term resistance candidate.  Nonetheless and as a direct result of the extent and impulsiveness of the past couple weeks' rate spike from 27-Sep's 1.555% low, that low remains intact as our key risk parameter this market needs to relapse below to really threaten our long-term count calling for higher rates.

These issues considered, shorter-term traders with tighter risk profiles are advised to neutralize bearish exposure at-the-market in anticipation of a correction higher that could produce Dec contract prices in the 130.20-to-130.30-range or higher as long as yesterday's 129.17 low and new short-term risk parameter remains intact.  Setback attempts to the 129.28-area OB may be approached as favorable risk/reward scalping opportunities from the bull side with stops below 129.17.  Longer-term players are OK to pare bearish exposure to a more conservative level to reduce interim risk of a corrective rebound, but a recovery above 30-Sep's 131.235 intra-day high remains required to negate our long-term bearish call that would warrant covering the balance of the bearish exposure.

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