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Interest Rates

Navigating T-Note Lower-Range

Posted 11/07/2018 7:30AM CT | RJO Market Insights

10-Yr Note Daily Chart

The daily chart of the Dec contract above shows the market’s past couple weeks’ relapse to the lower recesses of the past month’s 117.135 – 119.06-range that presents a slippery slope for bears “down here”.  Similarly but inversely, the daily log close-only chart of 10-yr yields below shows the recent rate rebound that has come close to but remains capped by 05-Oct’s 3.237% high.  From a longer-term perspective the extent to which the contract has tested the extreme lower recesses of the past month’s range raises the odds that the price action up from 08-Oct’s 117.135 low is corrective/consolidative and reinforces our long-term bearish count.  Until the market breaks below 117.13 however (above 3.237%), the lateral continuation of this range should not come as a surprise.  And if another intra-range rebound lies ahead, we need to look for and require a bullish divergence in MOMENTUM to stem this recent relapse and tilt the intermediate-term directional scales back to the bull side.

Benchmark Yield Daily Chart

Drilling down to a 240-min chart on a close-only basis, the chart below shows the nicely developing POTENTIAL for a bullish divergence in momentum.  But proof of strength above yesterday’s 118.07 corrective high is required to CONFIRM the signal to the point of non-bearish action like short-covers and cautious bullish punts.  Per such, this 118.07 level serves as our new micro risk parameter around which shorter-term traders can effectively position for another intra-range rebound.

Needless to say, 08-Oct’s 117.16 low and 29-Oct’s 119.02 high remain intact as this market’s key longer-term directional triggers.

10-Yr Note Dec '18 240 Min Chart

Finally and from a very long-term perspective, the weekly log chart below shows the past month’s chop as barely recognizable relative to the magnitude of the secular bear trend.  On this scale commensurately larger-degree strength above at least 22-Aug’s 120.24 corrective high remains required to even defer, let alone threaten our count calling for a secular bear trend in Treasuries that could span a generation.  In effect, we believe the past 2-1/2-year’s peak/reversal process and activity to be the inverse the major peak/reversal process between 1981 and 1984 before that lead to a generation-long secular bear that we believe ended 2016.  Within the secular bear trend will undoubtedly be periods of correction/consolidation like Mar-Sep’17’s recovery attempt and even May’Aug’17’s bounce.  But until and unless this market 1) recovers above a prior corrective high of commensurate scale, 2) recovers in a trendy, impulsive manner and, 3) relapses in a labored corrective manner, the secular bear trend that could span years or even a generation remains arguably intact.

These issues considered, a cautiously bearish stance remains advised with a recovery above 118.07 required to defer or threaten this call enough to warrant moving to a neutral-to-cautiously-bullish position ahead of an expected rebound to the upper-quarter of the recent range where a preferred risk/reward bearish position can be re-established.  Until such 118.07+ strength is shown however, further losses should not surprise with a failure below 117.135 reinstating the secular bear and exposing potentially significant losses thereafter that would warrant a resumed full bearish policy.10-Yr Note Weekly Chart

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