S-T Mo Failure Tilts 10-Yr Rates Higher Within Correction-vs-Reversal Debate

August 16, 2017 8:43AM CDT

While the market has yet to fail below our short-term risk parameter defined by 08-Aug's 125.29 corrective low in the Sep contract, this week's rebound in actual 10-yr yields confirms a bullish divergence in short-term momentum that arguably contributes to a broader base/reversal count in rates and peak/reversal count in the contract.  Furthermore, the relapse from Fri's 126.28 high below 10-Aug's 126.06 minor corrective low is enough to identify last week's 126.28 high as one of developing importance and a more reliable level from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.

10 yr Treasury 240 min Chart

The market's rejection thus far of the extreme upper recesses of the past couple months' range is also considered a contributing factor to a peak/reversal-threat environment and really reinforces that entire upper-126-handle as a key resistance area the market needs to break to resurrect 2017's broader recovery.  In lieu of such and as we'll discuss below, 14-Jun's 126.295 high close maintains its standing as the end or upper boundary to a major bear market correction.

10 yr Treasury Daily Chart

Broker Daily Chart

Yesterday's close above 04-Aug's 2.26% corrective high shown in the daily log close-only chart of 10-yr yields above is about as nondescript as it gets.  Nonetheless, this rebound, in fact, breaks the recent slide in rates from at least 25-Jul's 2.335% high.  And the Fibonacci fact that the rate slide from that 2.335% high to Fri's 2.194% low was equal in length (i.e. 1.000 progression) to the preceding decline from 07-Jul's 2.387% high to 21-Jul's 2.241% low contributes to a count that calls the entire Jul-Aug relapse attempt a 3-wave affair as labeled.  Left unaltered by a relapse below Fri's 2.193% low and new short-term risk parameter, this 3-wave setback is considered a corrective/consolidative structure that warns of a resumption of Jun-Jul's rate rise that preceded it.  This would mean a sharp, sustain rate hike to levels above at least 07-Jul's 2.387% high straight away.

Against the backdrop of Mar-Jun's 3-wave, 38.2% retrace of Jul'16 - Mar'17's 1.356% - 2.626% hike, this week's admitted minor rate rebound arguably contributes to a BASE/reversal threat in rates that could ultimately test the upper recesses of this year's range and eventually resurrect what we still believe is a new secular move higher in rates that could span a generation.  To threaten or negate this count all the 10-yr market has to do is relapse below 2.193% and 2.12%.

Broker Daily Chart

Finally, the weekly chart of the contract shows the recovery from Mar's 122.20 low that, on the heels of 2016's collapse, remains arguably corrective ahead of the eventual resumption of a major bear market in Treasuries.  These issues considered, traders are advised to move to a cautious bearish policy and first approach rebound attempts to the 126.12-to-126-15-area as corrective selling opportunities with a recovery above 126.28 negating this specific call and warranting its cover.  Further weakness below 125.29 will reinforce this call and expose further and potentially steep losses.

10 yr Treasury Weekly Chart

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

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.