Momentum, Waves, Fibs Threaten T-Note Bear

May 24, 2018 7:42AM CDT

As always, you can't conclude a broader base/reversal condition from smaller-degree strength. And we're not going to do so here. But relative to some very interesting longer-term momentum, Elliott and Fibonacci elements we'll expound on below, we don't want to ignore the extent of this week's rebound above our short-term risk parameter defined by 11-May's 119.17 high detailed in the 240-min chart below.

This week's recovery obviously defines 17-May's 118.105 low as the END of the decline from 04-May's 119.315 high. And that larger-degree corrective high remains intact as our key long-term risk parameter the market is MINIMALLY required to recoup to break even the Apr-May decline, let alone threaten the secular bear trend. This raises the question of what this week's larger-than-expected rebound above 119.17 is. Is it just another slightly larger-degree correction within the major bear or the start of a more protracted correction or reversal higher.

As a result of yesterday and overnight's sharp gains, the market has identified Tue's 118.23 low as the latest smaller-degree corrective low and new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed. A relapse below this level will render the recovery from 118.105 a 3-wave and thus corrective affair that would then be expected to re-expose the secular bear trend. Further gains however would contribute to a trendy, impulsive rally from last week's low that would raise the odds that this rebound is just the initial move of a broader basing/reversal threat.
T-Note Jun '18 240min Chart
T-Note Jun '18 Daily Chart

Only a glance at the weekly log chart below and daily chart above is needed to see that the secular downtrend remains as the dominant technical factor. A recovery above 04-May's 119.315 corrective high remains required to break even the portion of the bear from 02-Apr's 121.12 high, let alone the secular downtrend. To truly threaten the secular bear trend, commensurately larger-degree strength above 02-Apr's 121.12 major corrective high is required. Thus far, the past week's rebound has retraced only a Fibonacci minimum 38.2% of Apr-May's 121.12 - 118.105 decline. This arguable hiccup falls well within the bounds of another mere correction within the secular bear that should hardly surprise by its continuance. HOWEVER....

...Looming in the weeds are the following threats against this major bear market:

  • the developing POTENTIAL for a bullish divergence in WEEKLY momentum (confirmed above 121.12) amidst
  • the lowest (46%) Bullish Consensus ( sentiment levels in over FOUR YEARS and
  • an arguably complete and even textbook 5-wave Elliott sequence down from 08Sep17's 127.285 high as labeled below.

Again, commensurately larger-degree proof of strength above our key risk parameter at 120.00 remains MINIMALLY required to take the next step in a broader base/reversal count that could expose some of the most serious upside vulnerability since 1Q17. But it's certainly not too early to start mapping out a game plan for that eventuality, with a failure below 118.23 required to threaten this count and a relapse below 118.10 required to negate it and resurrect the secular bear.
T-Note Weekly Chart
Yield Daily Chart

While the same momentum, Elliott and sentiment elements are present on a 10-yr yield basis shown in the daily close-only chart above and weekly log close-only chart below, only inverted, contributing to a PEAK/reversal count on this yield basis is the Fibonacci fact that the rate rise from last Sep's 2.047% low weekly close has spanned exactly 61.8% (i.e. 0.618 progression) of Jul'16 - Mar'17's preceding rally from 1.356% to 2.582%. Along with waning upside momentum and an arguably complete (even textbook) 5-wave Elliott sequence up from that Sep low, a daily close below 03-May's 2.946% corrective low and key risk parameter (akin to 120.00 in the contract) will provide the next reinforcing step to a broader peak/reversal threat in rates. But to truly threaten or defer what we still believe is a generational move higher in rates, a weekly close below 30-Mar's 2.739% corrective weekly low close is required.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position as a result of overnight's recovery above 119.17. Longer-term players remain advised to maintain a bearish policy with strength above 120.00 required to take similar defensive action. If further near-term gains contribute to an alternate base/reversal-threat condition, the next "trade" might still come from the bear side following a countering bearish divergence in short-term mo that would likely warn of a subsequent (b- or 2nd-wave) corrective rebuttal to the initial counter-trend rally. THAT setback to, say, the upper-118-handle would be the one to watch for a terrific risk/reward buying opportunity for the months ahead.

Yield Weekly Chart

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