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S&P Confirms Major Peak/Correction Threat; Continued Treasury Strength Corroborates

Posted 05/29/2019 7:45AM CT | RJO Market Insights

JUN E-MINI S&Ps

Overnight’s break below last week’s 2806 low and 14-May’s critical 2800 low not only reaffirms the downtrend, but also confirms the major peak/correction/reversal count we introduced in 02-May’s Technical Blog.  This continued weakness leaves micro- and smaller-degree corrective highs in its wake at 2842 and 2894, respectively, as the levels this market is now minimally required to recover above to even defer, let alone threaten a developing bearish count that could be extensive.  Former 2800-to-2810-area support is considered new near-term resistance ahead of further and possibly protracted losses straight away.  The importance of 01-May’s 2961.25 high and new key long-term risk parameter goes without saying.

E-Mini S&P 500 240 Min Chart

By breaking below 14-May’s 2800 initial counter-trend low, the market has satisfied all three of our reversal requirements:

  1. a confirmed bearish divergence in momentum shown in the daily log chart below
  2. proof of trendy, impulsive behavior on the initial counter-trend break and, most importantly,
  3. proof of 3-wave, corrective behavior on a subsequent recovery attempt (from 2800 to 2894).

The market has, in fact, broken the uptrend from 26Dec18’s 2317 low to 01-May’s 2961 high and exposes at least a correction of this rally, the extent of which is indeterminable and potentially severe.  We’ve listed a number of Fibonacci retracement and progression relationships ranging from 2736 to 2499, but like EVERY merely derived “technical level”, these are pretty much meaningless without an accompanying bullish divergence in momentum needed to stem the clear and present downtrend and define a more reliable low and support from which any non-bearish decisions can only then be objectively based and managed.  In lieu of such a mo failure and especially against a steep, uninterrupted 4-month rally that left little in the way of former battlegrounds that might now be looked to as support candidates, the market’s downside potential should not be underestimated

E-Mini S&P 500 Daily Chart

E-Mini S&P 500 Weekly Chart

We’ve also recently discussed this market’s past history with larger-degree corrections after flirting with a prior al-time high.  Prior examples are circled in the weekly log chart above and monthly log chart below.  The fact that the sentiment/contrary opinion indicators are already relatively low MIGHT help save this market from a more protracted relapse, but until and unless this market stems the clear and present downtrend with a recovery above our new bear risk parameters cited above, traders are urged not to underestimate this market’s downside potential.

These issues considered, a bearish policy remains advised for shorter-term traders with a recovery above at least 2842 and preferably 2894 required to pare or neutralize bearish exposure.  Long-term players have been advised to neutralize all previously recommended bullish exposure as a result of today’s failure below 2800 and are further advised to move to a cautious bearish policy from 2800 OB with a recovery above 2894 minimally required to pare or neutralize exposure.  In lieu of such strength further and possibly protracted losses are anticipated straight away.

 

E-Mini S&P 500 Monthly Chart

 

JUN 10-Yr T-NOTES

10-Year Note Jun '19 240 Min Chart

The trend in Jun T-note prices remains up on all scales following the past couple days’ continued gains and corroborates our bearish count in S&Ps.  This continued strength defines new smaller- and larger-degree corrective lows at 124.27 and 124.01, respectively, that this market is now required to fail below to threaten or break the uptrend.  Per such these levels represent our new short- and longer-term risk parameters from which a still-advised bullish policy and exposure can be objectively rebased and managed.  In lieu of weakness below these levels, further and possibly accelerated gains should not surprise.  And given the relative inverse correlation between Treasuries and equities, this continued bullish outlook would seem to reinforce the bearish S&P count detailed above.

 

10-Year Note Daily Chart

 

 

10-Year Note Weekly Chart

 

MAR20 EURODOLLARS

 

Eurodollar Mar '20 Daily Chart

 

The technical construct and expectations for Mar20 Eurodollars is identical to that discussed above in T-notes with smaller- and larger-degree corrective lows and bull risk parameters shown at 97.73 and 97.51.  The trend is up on all scales and expected to continued and perhaps accelerate until and unless the market fails below these levels.  In sum, a full and aggressive bullish policy and exposure remain advised with weakness below 97.73 and/or 97.51 required to pare or neutralize exposure commensurate with one’s personal risk profile.  Former 97.85-area resistance is expected to provide near-term support.

 

Eurodollar Mar '20 Weekly Chart

 

RJO Market Insights