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Posted on Apr 19, 2023, 09:43 by Dave Toth
JUN 10-Yr T-NOTES
We’re beginning this Technical Blog with an update on interest rates, because if this count calling for a resumption of the secular move HIGHER in rates evolves as discussed below, it is very likely to have a negative impact on equities, the depth of which could be extensive. The 240-min chart below of the Jun T-note contract shows the market’s failure overnight below 29-Mar’s 114.07 corrective low and our short-term risk parameter. This move confirms the break of at least Mar-Apr’s uptrend, defining 06-Apr’s 116.30 high as perhaps this market’s single most important technical level. For 116.30 is THE level this market now needs to recoup to mitigate a broader bearish count and reinforce a base/reversal count that could have long-term implications that could be very supportive of equities. Until and unless such strength is proven, and especially if this relapse progresses to levels below 02-Mar’s 110.125 low, the consequences could be dramatic.
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The daily chart of the contract (above) and daily log close-only chart of 10-yr yields (below) show the bearish divergence in the contract and bullish divergence in 10-yr rates that confirms the counts we introduced in 12-Apr’s Technical Blog. As a result of these momentum divergences, the entire recovery attempt from 21Oct22’s 108.265 low is “only” a 3-wave affair thus far. Left unaltered by a recovery above 116.30 and reinforced by further weakness below 02-Mar’s 110.125 low, this 3-wave recovery attempt may be considered a corrective/consolidative event that would warn of a resumption of the secular bear market that preceded it.
What’s interesting about this corrective/consolidative count is that on a yield basis below, 06-Apr’s 3.305% low was less than a basis point away from the 3.307% 50% retracement of Aug-Oct’22’s portion of the rate rise from 2.573% to 4.251%. Additionally, the 1.000 progression of Oct-Dec’22’s initial counter-trend drop in rates from 4.251% to 3.422%, subtracted from 02-Mar’s 4.054% high, cut across at 3.263%, just four basis points from 06-Apr’s 3.305% low. In other words, the market’s rejection of this immediate area around these Fibonacci relationships leave the entire rate relapse from last Oct’s 4.251% high to 06-Apr’s 3.305% low as a textbook example of a 3-wave correction. Left unaltered by a relapse below 3.305% needed to negate this count and resurrect a major rate-declining count, and reinforced by a recovery above 02-Mar’s 4.054% high, Oct’22 – Apr’23’s erosion in rates may be considered a corrective/consolidative structure that warns of a resumption of the secular move HIGHER in interest rates. And it’s hard to imagine such higher rates not having a profoundly negative impact on equities.
But again, all the T-Note market needs to do to negate this count is recover above 116.30 in the contract and relapse below 3.305% in rates, so our risk parameters from which to base directional exposure are specific and objective.
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Finally, the weekly chart of the contract below shows the magnitude of the secular bear trend. Since early-Jan, we’ve discussed the major bullish prospect that the entire 2020 – 2022 decline is a complete and massive 5-wave Elliott sequence that would expose a major reversal higher (i.e. LOWER rates). This count certainly remains in contention. This said and per the alternate bearish count discussed above, Oct-Apr’s recovery attempt falls well within the bounds of a (4th-wave) correction against the backdrop of the secular bear trend. A relapse below 02-Mar’s 110.125 low will confirm Oct-Apr’s recovery attempt as a 3-wave and thus corrective affair, re-expose the secular bear market and resume stress on equities.
These issues considered, shorter-term traders have been advised to move to a neutral-to-cautiously-bearish policy with a recovery above 116.30 require to negate this call and warrant returning to a bullish stance. Longer-term institutional players are advised to pare bullish exposure to more conservative levels and neutralize remaining exposure on a failure below 110.125. In effect, we believe this market has identified 116.30 and 110.125 as the key directional flexion points heading forward.
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JUN E-MINI S&P 500
The 240-min chart below shows the past week’s continuation of the past month’s uptrend with the break of 04-Apr’s 4172 high confirming 06-Apr’s 4096 low as the latest smaller-degree corrective low the market must now sustain gains above to maintain a more immediate bullish count. its failure to do so will confirm a bearish divergence in momentum and break the Mar-Apr uptrend. Per such, we’re identifying 4096 as our new short-term risk parameter from which shorter-term traders can objectively rebase and manage the risk of a still-advised bullish policy and exposure.
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An admittedly short-term momentum failure below 4096 would only allow us to conclude the end of the uptrend from 13-Mar’s 3839 larger-degree corrective low. To break the 6-month uptrend from 13Oct22’s 3502 low, commensurately larger-degree weakness below 13-Mar’s 3839 larger-degree corrective low and key long-term bull risk parameter remains required. We cannot conclude larger-degree weakness and vulnerability from mere shorter-term weakness. However, every larger-degree momentum failure starts with a smaller-degree failure, bringing the critical issue of technical and trading SCALE into the equation.
In both the daily high-low chart above and close-only chart below, waning upside momentum is clear. this means nothing until/unless a momentum failure is CONFIRMED by an intra-day slip below 4096 and/or a close below 05-Apr’s 4114 low close. However, the chart above shows the market still at the precarious upper recesses of this year’s range. Additionally, yesterday’s 4179 close establish a NEW HIGH for the rally from last Oct’s low and the highest close since last Aug. This is technically constructive, until/unless the market fails below early-Apr’s corrective lows cited above.
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Lastly, on a longer-term basis, the weekly chart below shows the recovery attempt from last Oct’s 3502 low. This recovery can be one of only two things: a correction of last year’s major bear trend ahead of its eventual resumption or a reversal of last year’s bear. To this point and given the fact that this recovery has basically only retraced roughly 50% of last year’s bear, this recovery is best described as “labored” and struggling, characteristics of a correction. Waning upside momentum is clear. To confirm such a bearish count, this market needs to fail below 13-Mar’s 3839 low. To mitigate it and reinforce a broader bullish count, this market needs to BEHAVE LIKE A BULL somewhere along the line by sustaining trendy, impulsive and increasingly obvious behavior to the upside, blowing away last Aug’s 4328 high.
These issues considered, a bullish policy and exposure remain advised with a failure below 4096 required for short-term traders to move to a neutral/sideline position. Commensurately larger-degree weakness below 3839 remains required for long-term institutional players and investors to follow suit. In lieu of a relapse below at least 4096, further and possibly accelerated gains should not surprise. This said, we urge traders to acknowledge the importance of an admittedly smaller-degree corrective low and short-term risk parameter at 4096 while also keeping a keen eye on the T-Note market following today’s momentum failure below 114.07. If that relapse continues and is accompanied by an S&P failure below 4096, the ramifications could be extensive and opportunistic. We’ll certainly keep you posted in Market Insights.
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