While equities, gold and interest rates were the biggest movers on Election day 2016, this year only U.S. Treasury rates have seen a sharp jump in volatility on a short-term basis, at least thus far.  The 240-min chart of Dec T-Notes below shows this market plunging to a 137.205 low late yesterday afternoon- its lowest prices since early-Jun- before recovering sharply above a minor corrective high from Mon morning at 138.16 that confirms a bullish divergence in short-term momentum.  While quite obvious now, this mo failure defines overnight’s 137.205 low as the end of the decline from 28-Oct’s 139.03 next larger-degree corrective high and clearly one of developing importance that can be used as a risk parameter from which non-bearish decisions like short-covers can now be objectively based and managed.

This said, 28-Oct’s 139.03 corrective high also remains intact as the high and risk parameter the market still needs to recoup to confirm a bullish divergence in daily momentum and threaten our broader peak/reversal count introduced in 11-Aug’s Technical Webcast.  Admittedly, this is roughly a 1-1/2-pt range that separates our “short-term” directional risk parameters.  But this is just the nature of the current beast.  Scalping for 32nds in this environment where historical vol has risen sharply is ill-advised.

The daily bar chart above and close-only chart below show the nicely-developing POTENTIAL for a bullish divergence in momentum.  However, PROOF of strength above last week’s 139.03 corrective high (or close above 138.27) is needed to CONFIRM this divergence to the point of non-bearish action on the next larger scale.  And even then, the market will remain BELOW more than two months of former support-turned-resistance from the approximate 139.00-to-139-1/4-area.

To truly negate our long-term peak/reversal count, the market needs to recover enough to render the sell-off attempt from 04-Aug’s 140.105 high a 3-wave and thus corrective affair.  This requires a recovery above 29-Sep’s 139.26 next larger-degree corrective high and key long-term bear risk parameter.  Until and unless such commensurately larger-degree proof of strength is shown, longer-term institutional players remain advised to first approach recovery attempt to the lower-139-handle-area as corrective selling opportunities.

The daily log close-only chart of 10-yr yield above shows the inverted potential for a bearish divergence in daily mo that will be confirmed on a failure below 27-Oct’s 0.768% corrective low.  The fact that this divergence potential stems from the immediate area surrounding 05-Jun’s 0.898% key high is interesting and acknowledges this early-Jun level as a key longer-term flexion point.

We have identified this 0.898% level as THE KEY threshold this market needs to recoup to, in fact, break at least the TWO-YEAR downtrend in rates from Oct’18’s 3.237% high shown in the weekly log close-only chart below.  To see “some” corrective setback from this pivotal 0.898%-area is not surprising.  But commensurately larger-degree weakness in rates below 29-Sep’s 0.648% larger-degree corrective low is required to render Aug-Nov’s recovery attempt a 3-wave and thus corrective structure that would then re-expose the secular downtrend in rates.

From a very long-term perspective, our major peak/reversal count remains predicated on:

  • upside momentum that’s been waning for EIGHT MONTHS
  • historically frothy sentiment/contrary opinion conditions that haven’t been seen since those that warned of and accompanied Jul’16’s major peak/reversal and
  • an arguably complete 5-wave Elliott sequence up from Oct’18’s 117.13 low.

This is a unique and compelling list of elements that is typical of major peak/reversal-threat environments.  And with respect to the prolonged nature of this peak/reversal process in terms of TIME, it is virtually identical to the NINE MONTHS it took for this market to finally reverse 2016-2018’s major downtrend.

In sum, a bearish policy remains advised for long-term players with a recovery above 139.26 required to negate this call and warrant its cover.  Shorter-term traders can have their volatile pick:  maintain a bearish posture with a recovery above 139.03 required to negate this call and warrant its cover OR neutralize bearish exposure and require a relapse below 137.20 to negate this call, reinstate the bear and warrant a return to a bearish policy.  We will be watchful for anther bearish divergence in short-term momentum from a level south of 139.03 needed to arrest today’s spasm and reject/define a more reliable high from which shorter-term traders can objectively rebase bearish directional biases and exposure.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.