Currency

S-T Mo Failures Arrest T-Note, Eurodollar Bears; Premature to Conclude Bottoms

Posted 11/01/2022 2:01PM CTRJO Market Insights

Posted on Nov 01, 2022, 07:07 by Dave Toth

DEC 10-Yr T-NOTES

Against the backdrop of a 26-month secular bear market, eking out a recovery last Thur above 13-Oct’s 111.285 corrective high and our short-term risk parameter discussed in 13-Oct’s Technical Webcast isn’t the most decisive of momentum failures.  But after an exact 50% retracement of last week’s 108.265 – 111.31 rally, we believe today’s recovery defines yesterday’s 110.12 low and 21-Oct’s 108.265 low as ones of developing importance to a base/correction/recovery count that, for longer-term ancillary reasons we’ll discuss below, could produce more protracted gains in the weeks ahead.  Per such, 110.12 and 108.265 serve as our new mini and short-term parameters from which the risk of non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

Continued gains above last week’s 111.31 high will reinforce this call and expose 04-Oct’s 113.30 larger-degree corrective high and pivotal long-term bear risk parameter as the next pertinent upside threshold.

On a broader scale, the past week’s recovery attempt is obviously of an insufficient scale to conclude anything more than another corrective hiccup within the secular downtrend that has been the dominant technical factor for the past 26 months.  However, a few considerations merit acknowledgement that, if correct, could lead to a major correction or reversal higher:

  • historically bearish levels (24%) in the Bullish Consensus (marketvane.net) that haven’t been seen in over 20 years
  • the developing POTENTIAL for a bullish divergence in daily momentum
    • CONFIRMED above 04-Oct’s 113.30 larger-=degree corrective high
  • the prospect that 21-Oct’s 108.265 low completed a 5-wave Elliott sequence down from 02-Aug’s 122.02 high as labeled above
  • the prospect that 21-Oct’s 108.265 low completed at least the 3rd-Wave and possibly the 5th-Wave of a massive Elliott sequence down from Aug 2020’s 140.13 high as labeled below.

Of course, commensurately larger-degree strength above 04-Oct’s 113.30 larger-degree corrective high and key long-term bear risk parameter remains required to CONFIRM the bullish divergence in daily momentum, confirm Aug-Oct’s decline as a complete 5-wave sequence and expose a larger-degree correction of at least the 122.02 – 108.265 decline.  Until and unless such 113.30+ strength is shown, it would be premature to CONCLUDE such a larger-degree recovery.  It is NOT premature however to conclude thus far smaller-degree lows and support at 110.12 and 108.265 as levels from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.  This not uncommon matter of technical and trading SCALE is once again at work, where traders have the opportunity to tailor directional exposure around these three pertinent levels- 110.12, 108.265 and 113.30- commensurate with their personal risk profiles.

These issues considered, shorter-term traders have been advised to move to a neutral/sideline position as a result of Thur’s recovery above 111.285 and are further advised to move to a cautious bullish stance from current 111.13-area prices OB as long as they’re comfortable with risk to at least 110.12 and certainly 108.265.  Longer-term institutional players are advised to pare bearish exposure to more conservative levels and jettison remaining exposure on a recovery above 113.30.  Longer-term players also have the option of acknowledging and accepting whipsaw risk below 108.265 in exchange for steeper nominal risk above 113.30.

DEC23 EURODOLLARS

On the heels of last week’s bullish divergence in short-term momentum above 95.295 and an exact 61.8% retracement of last week’s 94.965 – 95.51 rally, the technical construct and expectations of the dec23 Eurodollar market are identical to those detailed above in T-notes with our new mini and short-term bull risk parameters at 95.17 and 94.965 and our key long-term bearish risk parameter still intact at 95.765.  Shorter-term traders are advised to move to a neutral-to-cautiously-bullish stance with a failure below at least 95.17 and certainly 94.965 required to threaten and then negate this call and warrant moving to a neutral and then resumed bearish position.  Longer-term institutional players are advised to pare bearish exposure to more conservative levels and neutralize remaining exposure on commensurately larger-degree strength above 95.765 that would expose at least a larger-degree correction of Jul-Oct’s 97.225 – 94.965 decline.  Needless to say, a relapse below 94.965 reaffirms the secular bear trend ahead of indeterminable losses thereafter.

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