S-T T-Note, Eurodollar Mo Failures Present Favorable Risk/Reward Selling Opp

July 25, 2017 8:54AM CDT


The market's failure overnight below 19-Jul's 125.305 smaller-degree corrective low confirms a bearish divergence in short-term momentum that defines Fri's 126.12 high as one of developing importance and possibly the END of a corrective rebound from 06-Jul's 124.255 low that could have long-term bearish implications.  In this regard Fri's 126.12 high is considered our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed.  The Fibonacci fact that this mo failure stemmed from the immediate area of the (126.10) 61.8% retrace of Jun-Jul's 127.08 - 124.255 decline would seem to reinforce a peak/reversal environment that we believe could produce significant losses.

10 yr Treasury 240 min Chart

10 yr Treasury Daily Chart

The daily close-only chart above shows the extent of this month's recovery attempt that remains within the context of a correction within a broader peak/reversal environment from 14-Jun's 126.295 high.  While that 126.295 high remains intact as a resistant cap, the Mar-Jun recovery remains a 3-wave and thus corrective structure that warns of an eventual resumption of 2016-17's major downtrend that preceded it.

Inverted, the daily log close-only chart of actual 10-yr yields below shows Mar-Jun's rate relapse that looks to be only a 3-wave affair as labeled.  On the heels of Jul'16 - Mar'17's trendy, impulsive, 5-wave rally and thus far failing to retrace even a Fibonacci minimum 38.2% of the 2016-17 rate rise, Mar-Jun's relapse attempt is advised to first be approached as a corrective event consistent with our call for a new secular bear market in the contract and generational move higher in rates.  A break below 14-Jun's 2.12% low remains required to even defer, let alone threaten this call.

Broker Daily Chart


Finally, the weekly active-continuation chart of the contract shows monumental support from the 122-handle.  There's no telling how long this market might oscillate within the past seven months' 127-to-122-1/2-range.  But as a result of this morning's admittedly smaller-degree momentum failure from the upper-quarter of this range, we believe the market has presented a favorable risk/reward condition from which to re-establish a bearish policy and exposure from current 125.27-area levels OB with a recovery above 126.12 required to threaten this call enough to warrant a return to the sidelines.  In lieu of such 126.12+ strength we believe the market could be in store for surprising, long-lived losses.

In sum, traders are advised to move to a new bearish policy from 125.27 OB with a recovery above 126.12 required to negate this call and warrant its cover.

10 yr Treasury Weekly Chart




Similarly, this morning's break below Thur's 98.385 initial counter-trend low confirms a bearish divergence in short-term momentum that defines last week's 98.425 high as the END of the recovery from 06-Jul's 98.305 low.  While that 98.425 high remains intact as a resistant cap and short-term risk parameter, we anticipate at least a steeper correction of Jul's recovery and very possibly the continuation of a major peak/reversal-threat environment that dates from mid-May.

Euro Index 240 min Chart


Euro Index Daily Chart

Today's bearish divergence in short-term mo preserves 22-Jun's 98.46 intra-day high and 98.45 corrective high close that serve as our key risk parameters to our long-term bearish count that contends that 18-May's 98.515 high COMPLETED or defined the upper boundary to a correction within a new secular bear market in short rates.  Today's short-term mo failure also acknowledges former 98.40.41-area support from May/Jun as new resistance on a daily close-only basis below.

If correct, this bearish count calls for a continuation of the past couple months' peak/reversal PROCESS that is expected to result in an eventual break below 05-Jul's 98.305 low ahead of further and possibly steep losses.

Euro Index Daily Chart


From a very long-term perspective shown in the weekly close-only chart below, traders are reminded that the past few months' recovery follows:

  • a confirmed bearish divergence in WEEKLY momentum
  • an initial 5-wave decline that warns that the new long-term trend is down and
  • a Fibonacci minimum 38.2% retrace of 2016-17's 99.12 - 98.075 decline that would seem to evidence underlying weakness.

Here too, there's no telling how long this market might consolidate between the past four months' range of 98.05-to-98.51.  But until or unless the market recovers above at least 98.43 and preferably 22-Jun's 98.46 high, we believe the past couple months' peak/reversal structure remains intact and warns of further lateral-to-lower prices straight away.  06-Jul's 98.305 low marks the next key downside threshold.

In sum, traders are advised to return to a bearish policy and exposure from current 98.38-area levels OB with a recovery above 98.43 threatening this call enough to warrant its cover.  In lieu of such strength further losses that could span weeks are expected straight away.

Euro Index Weekly Chart

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