Agonizing T-Note Consolidation Continues | RJO Futures

February 24, 2017 8:34AM CST

Yesterday's break above 17-Feb's 124.29 intra-range resistance confirms at least the intermediate-term trend as up and leaves Tue's 124.125 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter the market needs to sustain gains above to maintain a more immediate bullish count.  This tighter but yet objective risk parameter may come in handy as the market once again approaches the upper resistant recesses of the 125.18-to-123.18-range that has constrained prices for the past two months.

Indeed, the 240-min chart below shows the market's rejection last week of the extreme lower recesses of this range that led to the current rebound.  If the upper recesses of this range are going to once again repel the bull, we'll need a prior corrective low and risk parameter around which to gauge a confirmed bearish divergence in momentum needed to arrest the current uptrend.  Currently this level is 124.12.  In lieu of such proof of weakness, there's no way to know that this market won't break 08-Feb's key 125.18 resistant cap and move markedly higher.

10 yr Treasury 240 min Chart


10 yr Treasury Daily Chart

On the heels of Dec-Jan's initial, impulsive rally from 122.26 to 125.07, the subsequent month's worth of merely lateral chop to 15-Feb's 123.31 low in the daily close-only chart above is very likely just the (B- or 2nd-Wave) correction to that preceding Dec-Jan rally that we believe is now poised to resume to new highs above early-Feb's 125.115 high.

Against the backdrop of the long-term downtrend we still strongly suspect that all of the price action up from 16-Dec's 122.265 low is corrective, suggesting the current rally from 123.31 is the completing (C-Wave) of a correction ahead of the eventual resumption of what we believe is a new secular bear market.  HOWEVER, we never pick tops or buck a trend without a confirmed bearish divergence in momentum needed to, in fact, stem that trend.  Because in this case, and until such a mo failure stems the rally, there's really no way to know that the rally from 123.31 isn't the 3rd-Wave of a major reversal higher.  Herein lies the importance of identifying a tight but objective risk parameter like 124.12 discussed above.

  The fact that the 2-month recovery attempt from 16-Dec's 122.265 low has thus far failed to retrace even a Fibonacci minimum 38.2% (to 125.31) of Sep-Dec's (suspected 3rd-Wave) plunge from 131.01 to 122.265 would seem to reinforce our longer-term bearish count that this recovery is a correction within a broader bear.  Basis 10-yr yields shown in the daily log close-only chart below, the relapse in rates has yet to retrace even a more minimal 23.6% of Sep-Dec's rate rise from 1.55% to 2.60%.  We will not be surprised by a break below the key 2.33%-area that has supported the market over the past five weeks, a break that could expose steep rate losses; hence our current cautious bullish view in the contract.  However, traders remain warned to be extra vigilant in their watch for a bearish divergence in momentum in the contract and bullish divergence in mo in rates following a break above 125.12 and below 2.32%.  Returning to a bearish policy after such a mo failure could present a fantastic risk/reward selling opportunity in the contract.

Broker Daily Chart


Finally, the weekly chart of the contract below shows the magnitude of the major downtrend that serves as the backdrop for our longer-term bearish count.  Nonetheless, corrective structures/environments within/against such a trend can be frustrating, agonizing beasts that simply are a fact of trading life.  We always recommend a more conservative approach to risk assumption under such conditions as the odds of winning trading decisions are even more stacked against the trade then under less choppy circumstances.

These issues considered, a neutral-to-cautiously-bullish stance is advised with a failure below 124.12 required to negate this call, re-expose the major downtrend and warrant a return to a bearish stance.  Former 124.29-area resistance is considered new near-term support ahead of continued gains that could include a break above 08-Feb's key 125.18 high.  Once above 125.18 there is no way to determine the market's upside potential.  And this potential should not be underestimated until and unless the market stems that rally with a confirmed bearish divergence in momentum.

10 yr Treasury Weekly Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.