Mo Failures Stem T-Note, Eurodollar Corrective Recoveries | RJO Futures

January 19, 2017 2:45AM CST

MAR 10-Yr T-NOTES

The market's failure overnight below our short-term risk parameter defined by last Fri's 124.11 corrective low confirms a bearish divergence in momentum that breaks the uptrend from 15-Dec's 12.145 low and defines Tue's 125.135 high as the END of a 5-wave Elliott sequence up from that Dec low as labeled in the 240-min chart below.  This combination of factors warns of at least an interim correction of the 122.145 - 125.135 rally and possibly a resumption of the secular bear trend.  As a result of this mo failure Tue's 125.135 high is considered our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.

10 yr Treasury 240 min

10 yr Treasury Daily

The daily close-only chart above shows the bearish divergence in momentum with the market failing to retrace a Fibonacci minimum 38.2% of the (suspected 3rd-Wave) decline from 29-Sep's 131.01 high to 16-Dec's 122.265 low.  Looking at actual 10-yr yields, the daily log close-only chart below shows the past month's relapse attempt failing to reach even the shallower Fib retrace of 23.6% of late-Sep/mid-Dec's analogous rate rise.  On the heels of such a steep drop in T-note prices, we believe such a shallow counter-trend recovery underscores the overall weakness and vulnerability of this market.

"Theoretically", from an Elliott Wave perspective, the 5-wave-looking, impulsive nature of the past month's recovery attempt  suggests that this rebound is only the initial A-Wave of a correction that's got further lateral-to-higher prices to go before the long-term bear resumes.  This could manifest itself in an interim B-Wave setback to, say, the area around the (123.185) 61.8% retrace of Dec-Jan's 122.14 - 125.13 rally before a subsequent C-Wave back up as sketched out in the daily close-only chart above.  Against the backdrop of the long-term downtrend however, those relying on "theory" of any sort may be disappointed if the secular bear trend resumes straight away.

If such further, lateral-to-higher correction is going to define the next four to six weeks' price action, the market will need to prove it by stemming the current relapse with another bullish divergence in mo from some level above Dec's 122.145 low.  And if/when this occurs, we'll act accordingly and prepare for another run at this week's 125.135 high and beyond.  Until such requirements are met, the last thing traders should be surprised at is a resumption of the major downtrend to new lows below 122.14.

Broker Daily

The weekly chart below shows the magnitude of what we believe is just the start of a new secular bear trend in Treasury prices that could span a generation.  Thus far the headline 122-handle that provided major support in 2013 has thus far held.  We do not expect it to hold for long.

In sum, traders have been advised to return to the sidelines after overnight's failure below 124.11 and are further advised to re-establish bearish exposure on a recovery attempt to the 124-3/4-to-125.00-range with a break above 125.14 required to negate this call.  We anticipate a relapse to at least the 123.18-area or below and possibly a resumption of the major bear trend.

10 yr Treasury Weekly

DEC17 EURODOLLARS

Similarly, this morning's failure below last Fri's 98.44 corrective low breaks the past month's uptrend from 15-Dec's 98.36 low and defines Tue's 98.535 high as the END or upper boundary to a suspected cor5rection within what we believe is a new secular bear trend.  In this regard 98.54 is considered our new short-term risk parameter from which all non-bullish decisions like long-covers and resumed bearish punts can now be objectively rebased and managed.

It is indeterminable whether the past month's rebound is a 3- or 5-wave sequence, so there's no way to know at this juncture whether the bear market correction ENDED at 98.535 or if that high defined just the upper boundary of further lateral behavior in the weeks ahead.  Regardless, a break above 98.54 is minimally required to threaten or negate a broader bearish count and expose a broader recovery.

Euro Index 240 min

Euro Index Daily

The daily chart above shows the magnitude of the clear and present downtrend that requires strength above at least 98.54 and preferably 05-Dec's larger-degree corrective high and key risk parameter at 98.65 to threaten or negate.  On a daily close-only basis below, the past month's recovery stalling at the exact and Fibonacci minimum 23.6% retrace of Nov-Dec's 98.925 - 98.385-portion of the bear would seem to underscore its overall weakness and vulnerability.  Per such, even if there is "more" correction/consolidation to go in the weeks or month ahead, we believe odds favor this consolidation unfolding more laterally than upwardly.

Euro Index Daily

From a very long-term perspective the weekly close-only chart below shows the market's break of the secular bull trend from Sep'13's 96.23 low.  There will surely be corrective rebounds along the way, with some of them substantial.  But until and unless this market can recover above at least 04-Nov's 98.93 corrective high close, such recoveries are advised to first be approached as mere corrections within a new secular bear market that could span years.

In sum, a bearish policy remains advised with strength above 98.54 required to even defer, let alone threaten this call and warrant defensive measures.  The lower-quarter of the recent 98.36-to-98.54-range could easily hold as support in the weeks ahead and prompt further lateral range-trade between these bounds, offering intra-range flip opportunities for scalpers.  But until and unless this market recoups 98.54, we believe the secular bear trend to eventual new and potentially significant lows below 98.36 remains intact.

Euro Index Weekly


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