Posted on Aug 15, 2023, 06:36 by Dave Toth


Today’s clear break below 131.12-to-130.55-area that has supported this market for the past five months reinstates the secular bear market from Dec’20’s 178.77 orthodox high.  This reaffirmed long-term weakness leaves smaller- and larger-degree corrective highs in its wake at 133.45 and 134.88, respectively, that now serve as the key short- and longer-term parameters this market is required to recoup to defer or threaten a bearish count enough to warrant paring or neutralizing bearish exposure.  In lieu of such strength the trend is down on all scales and should not surprise by its continuance or acceleration straight away.  The now-former 130.55-to-131.12-range support is considered new key resistance ahead of further losses to level indeterminately lower.


Overnight’s break below 04-Aug’s 109.24 low confirms last week’s exact 61.8% retrace of mid-Jul/early-Aug’s 113.08 – 109.24 decline as a 3-wave and thus corrective event and reinstates the broader downtrend from at least 06-Apr’s 116.30 high and possibly the 3-year secular bear market.  This resumed weakness leaves 10-Aug’s 111.29 high in its wake as the latest smaller-degree corrective high this market is now minimally required to recoup to defer or threaten a resumed or continued bearish count.  In this regard this 111.29 level serves as our new short-term parameter from which shorter-term traders can objectively rebase and manage the risk of a resumed bearish policy and exposure.

Unlike the German bund, the weekly chart of the 10-yr T-Note contract below shows the market has yet to break last Oct’s 108.265 low.  As there are NO levels of any technical merit between spot and that key 108.265 low now that the market has broken 04-Aug’s 109.24 low, the bear is free to “perform” and take out that key 108.265 low.  To defer or threaten such a bearish call, the market needs to recover above at least 111.29.  Commensurately larger-degree strength above 18-Jul’s 113.08 larger-degree corrective high and key longer-term bear risk parameter remains required to threaten a broader bearish count and resuscitate a larger-degree correction or major reversal higher.

On a yield basis, the daily log close-only chart below shows the market’s position at the extreme upper recesses of a range that dates from 24Oct22’s 4.251% high.  But as discussed in 19-May’s Technical Blog following mid-Apr’s bullish divergence in momentum, the entire Oct’22 – Apr’23 yield decline looked to be a textbook 3-wave and thus corrective affair that warned of a resumption of the secular move higher in rates.  The extent and impulsiveness of the rate rise since 06-Apr’s 3.305% low is only a few basis points away from confirming this call with a break above last year’s 4.251% high rate.  And above that high are NO levels of any technical merit to look to as resistance as the secular move higher in rates and lower in the contract resumes.

These issues considered, a bearish policy remains advised for longer-term institutional players with a recovery above at least 111.29 and preferably 113.08 required to pare or neutralize exposure.  Shorter-term traders whipsawed out of bearish exposure on last week’s bullish divergence in short-term momentum are advised to return to a cautious bearish stance with a recovery above 111.29 required to negate this call and warrant its cover.  The bear’s remaining downside potential is approached as indeterminable and potentially extreme.

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