10-Yr Note Continues Suspected Corrective Rebound, Defines New S-T Bull Risk

July 19, 2017 8:58AM CDT


This week's continued gains reinforce our call in 12-Jul's Trading Strategies Blog for a suspected interim correction of Jun-Jul's 127.08 - 124.255 following that day's bullish divergence in short-term momentum.  As a result the 240-min chart below shows that the market has identified Mon's 125.18 low as the latest smaller-degree corrective low and area of former resistance-turned-support that the market is now minimally required to fail below to break this recovery, raise the odds of a bear market correction count and re-expose Jun's downtrend.  In this regard 125.18 is considered our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively rebased and managed.

10 yr Treasury 240 min Chart

10 yr Treasury Daily Chart

From a broader perspective and while 14-Jun's 126.295 high close remains intact as a resistant cap and key long-term risk parameter, a long-term bearish count remains arguably.  This count contends that that 126.295 high close (127.08 intra-day high) defined the END or upper boundary of a 3-wave recovery from the Mar low.  Against the backdrop of 2016's major downtrend and left unaltered by a recovery above 126.30 and our key long-term risk parameter, this 3-wave recovery is considered a corrective/consolidative event that warns of the eventual resumption of 2016's major bear to sub-122-levels.

IF this broader bear market correction count is correct and the past couple weeks' recovery attempt is a mere correction within a peak/reversal environment from 14-Jun's high, then we would expect the current rebound to be stemmed somewhere around the 126.04-to-126.10-area (61.8% retraces of Jun-Jul's decline on a daily close-only and intra-day basis) with a confirmed bearish divergence in short-term momentum.  Herein lies the importance of identifying a tight but objective risk parameter like 125.18.  In lieu of such sub-125.18 weakness we don't want to underestimate the extent of this corrective rebound OR the possibility that this bearish count is simply wrong and the market's prepping to zing off to new highs above 127.08.

These issues considered, shorter-term traders remain advised to maintain cautious bullish exposure from 125.13 OB recommended in 12-Jul's Trading Strategies Blog with a failure below 125.18 required to warrant its cover and flip around to the bear side.  Longer-term players remain advised to maintain a cautious bearish policy with a close above 126.30 or an intra-day poke above 127.08 required to negate this call, warrant its cover and resurrect this year's broader uptrend. 

10 yr Treasury Weekly Chart



Here too the past week's continued rebound reinforces an interim base/reversal call introduced in 11-Jul's Technical Blog following that day's bullish divergence in short-term mo above 98.345.  The 240-min chart below shows that the potential for a bearish divergence in short-term momentum is developing, but proof of weakness below at least 13-Jul's 98.375 minor corrective low is required to CONFIRM this divergence to the point of non-bullish action like short-covers.

Euro Index 240 min Chart

Euro Index Daily Chart

This tight but objective risk parameter may come in handy given the market;s engagement of former 98.40/.41-area support from late-May until 29-Jun's breakdown that is now considered a new key resistance area.  On a daily close-only basis below, May-Jul's exact 38.2% retrace of Mar-May's 98.065 - 98.485 rally looks to be a clear 3-wave affair.

Left unaltered by a relapse below 98.32, this sell-off attempt cannot be ignored as a mere correction of Mar-May's uptrend that preceded it ahead of an eventual resumption of that uptrend to new highs above 98.49.  Commensurately larger-degree proof of strength above 22-Jun's 98.45 larger-degree corrective high and key long-term risk parameter is required to CONFIRM such a count however and expose a run to new 2017 highs.  In effect we believe the market has identified 98.45 and 98.32 as the key directional triggers heading forward.

Euro Index Daily Chart

Traders are reminded that from a very long-term perspective the extent and impulsiveness of Jul'16 - Mar'17's decline breaks the secular bull and exposes a peak/reversal environment that we would expect to be major in scope, perhaps even generational.  And the fact that this year's recovery has thus far only retraced a Fibonacci minimum 38.2% of the 2016-17 decline cannot be ignored as evidence of underlying weakness that contributes to such a broader bearish count.

In sum, a cautious bullish policy remains OK for shorter-term traders with a failure below 98.37 threatening this count enough to warrant flipping around to a cautious bearish bias.  Long-term players remain OK to maintain a bearish policy with strength above 98.46 negating this call and exposing a continuation of 2017's recovery.

Euro Index Weekly Chart

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