10-Yr T-Note Reinforces Bearish Count, Defines New S-T Risk

March 8, 2017 11:06AM CST

Overnight's clear break below the past three weeks' 123.09-to-123.06-area support reinforces our longer-term bearish count and leaves Mon's 123.275 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter the market is now minimally required to recoup to even defer, let alone threaten this call.  Former 123-1/4-area support is considered new near-term resistance ahead  of further and possibly accelerated losses.

10 yr Treasury 240 min Chart

 

10 yr Treasury Daily Chart

This tight but objective risk parameter may come in handy given the market's encroachment on the extreme lower recesses of not only the past quarter's 122.10-to-125.03-range shown in the daily close-only chart of the now-prompt Jun contract above, but also the pivotal lower-122-handle-area that has supported this market since Sep 2013 shown in the weekly chart below.  On the heels of Sep-Dec'16's (3rd-Wave) meltdown, the past three months' mere lateral chop is likely a (4th-Wave) correction ahead of a resumption of 2016's bear trend.

We fully anticipate an eventual break below the 122-1/4-area floor that could expose the next leg of what we believe is a new secular bear market in Treasuries OR produce a major bullish divergence in momentum and an interim correction higher.  We can only address that bridge when we come to it.  But while the lower-122-handle remains unbroken, there's really no way to tell how much further intra-range chop between 125.03 and 122-1/4 this market might still have in store.  We can objectively prepare for such chop IF/when the market recoups 123.28.  Until such minimum strength is produced, there's no way to know that the bear isn't going for that key 122-1/4 threshold straight away.  Fri's key Feb unemployment report is the kind of report that's capable of produce a sharp move either way, so identifying these technical cut-points like 123.28 and 122.07 to base trading decisions on is important.

10 yr Treasury Weekly Chart

 

Broker Daily Chart

Basis 10-yr yields the market's Fibonacci minimum and exact (2.30%) 23.6% retrace of Sep-Dec's 1.555% - 2.60% rate rise would seem to underscore the strength of this uptrend in rates.  On the heels of last year's major uptrend the past three months' mere lateral rate action is very likely corrective/consolidative and warns of a resumption of the rate rise to new highs above 15-Dec's 2.60% high.

HOW the market behaves above 2.60%- either by sustaining those highs and accelerating OR failing miserably could have significant implications for the months and perhaps even quarters ahead.  The weekly log close-only chart below shows NO levels of any technical merit between 2.60% and Dec'13's 3.00% high.  Per such a break above 2.60% could expose accelerated gains.  Conversely, it's not hard to find threats against a call for higher rates.  Such threats include:

  • waning upside momentum
    • a major bearish divergence in mo would be CONFIRMED on a subsequent rate relapse below 24-Feb's pivotal 2.30% low
  • a potentially completing 5-wave Elliott sequence from Jul'16's 1.356% low.

If the market spiked above 2.60% and then failed below 2.30%, that would END the 2016-17 uptrend in rates and expose a major correction lower that could span months and would very likely be the market's response to slower or questionable economic growth than is currently expected.  Here too however, we can ONLY address that bridge if/when the market takes us there (i.e. after a sub-2.30% failure).  Until and unless such a rate relapse is proven, there is no way to know that rates won't go relatively ballistic once above 2.60%.

In sum, a bearish policy remains advised in the now-prompt Jun contract with strength above at least 123.28 required to threaten this call and expose further intra-122.10-to-125.03-range chop.  In lieu of such 123.28+ strength further and possibly accelerated losses remain expected with former 123-1/4-area support considered new near-term resistance.

Broker Weekly Chart

 


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