S-T Mo Failure Renders T-Note Pop Corrective, Re-exposes Bear

October 25, 2016 3:48AM CDT

The market's failure yesterday and overnight below 19-Oct's 130.04 minor corrective low confirms a bearish divergence in momentum and renders the recent recovery attempt from 12-Oct's 129.17 low to yesterday's 130.155 high a 3-wave affair as labeled in the 240-min chart below.  Left unaltered by a recovery above 130.16 that now serves as our new short-term risk parameter, this 3-wave rebound is considered a corrective/consolidative affair consistent with our longer-term bearish count discussed in 13-Oct's Technical Blog .

10 yr Treasury 240 min

10 yr Treasury Daily

Relative to late-Sep/early-Oct's plunge from 131.17 to 129.25 on a daily close-only basis above, this labored recovery attempt is shallow and would seem to be consistent with underlying weakness and vulnerability to the contract.  On a yield basis shown in the daily log close-only chart below, former 1.729%-area resistance from mid-Sep held nicely as new support, again, consistent with a technical count calling for higher yields and lower prices.

On a longer-term basis a recovery above 29-Sep's 131.175 high (below 1.55% yield) remains required to negate our bearish count calling for a major reversal lower.

Broker Daily

Our long-term bearish count contends that the major recovery from Dec 2013's 122.24 low shown in the weekly chart below is part of a peak/reversal PROCESS dating from Jul'12's 135.15 high that calls for the reversal of the secular bull trend for Treasuries that has been in place since 1981.  Such a mega-topping process suggests a generation of lower T-note prices and higher rates ahead.

These issues considered, longer-term players remain advised to maintain a bearish policy and exposure with strength above 131.18 required to negate this call and warrant defensive measures.  Shorter-term traders with tighter risk profiles advised to move to a neutral-to-cautiously-bullish stance following 13-Oct's bullish divergence in short-term mo above 130.07 are advised to move back to a cautiously bearish stance from 130.00 OB with strength above 130.16 required to negate this specific call.  A resumption of the past quarter's downtrend to new and potentially significant lows below 129.17 is anticipated.

10 yr Treasury Weekly

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