Posted on Mar 24, 2023, 08:28 by Dave Toth
More than two years ago, in 16Feb2021’s Technical Blog and in subsequent updates, we introduced the momentum, contrary opinion and wave elements that warned of a peak/reversal count in the Eurodollar market that could be massive in scope. As recently introduced as a result of 13-Mar’s recovery above 19-Jan’s 96.39 major corrective high in the Mar24 SOFR contract, the identical, but inverted elements are in place. The combination of:
- a confirmed bullish divergence in MONTHLY momentum amidst
- historically bearish (21%) levels in the Bullish Consensus (marketvane.net) measure of market sentiment/contrary opinion
- an arguably textbook complete and massive 5-wave Elliott sequence from Aug’20’s 99.985 high to this month’s 94.775 low, and
- an “outside MONTH up” (lower low, higher high and higher close than Feb’s range and close)
is a unique, compelling and we believe powerful confluence of technical facts and observations that warn of at least a major correction or reversal of the 31-MONTH secular bear trend. This means potentially sharply LOWER short-term interest rates in the months and perhaps even quarters ahead. To negate this new long-term bullish count and call that stem from quality-flight and threatening economic conditions, all the bear needs to do is break 08-Mar’s 94.775 low that serves as our obvious key long-term bull risk parameter.
On an interim basis, the thing to watch out for next is the (B- or 2nd-Wave) corrective rebuttal to this month’s initial (A- or 1st-Wave) rally that is typical of major reversal PROCESSES. We will keep a keen eye on MOMENTUM in the days and weeks ahead for any divergence that would arrest the current rally and expose such a relapse.
Drilling down a bit, the weekly close-only chart below shows the technical trifecta of last week’s confirmed bullish divergence in momentum above 96.20 amidst historically bearish sentiment levels and a textbook complete 5-wave Elliott sequence down from Aug’20’s 99.965 all-time high weekly close. This wave count includes the Fibonacci fact that 03-Mar’s 95.01 low close came within a mere 4-bps of the (95.05) 1.000 progression of Aug’20 – Apr’21’s 1st-Wave decline from 99.965 to 98.815 since the major 3rd-wave down “extended”. Again, if this major base/reversal count is wrong, all the bear needs to do is take out this month’s 95.01 low weekly close or 94.775 intra-day low. Until and unless such weakness is confirmed, a base/correction/reversal count that could be months or even quarters in length is intact.
On an even shorter-term, scale, the daily 9above) and 240-min (below) charts show today’s recovery above Mon’s 96.70 high that nullifies Wed’s bearish divergence in short-term momentum and reinstates this month’s impressive uptrend. The important by-product of this resumed strength is the market’s definition of Wed’s 95.88 low as the latest smaller-degree corrective low this market is now minimally required to fail below to arrest the clear and present uptrend and expose a corrective rebuttal of the broader recovery from 08-Mar’s 94.775 low. Until and unless such sub-95.88 weakness is proven, the trend is up on all practical scales and should not surprise by its continuance or acceleration straight away.
These issues considered, traders are advised to move to a cautious bullish policy and exposure with a failure below 95.88 required to defer or threaten this bullish call enough to warrant moving to the sidelines and keeping powder dry for a preferred risk/reward opportunity from the bull side from the 95.50-area or lower that could present on the best risk/reward buying opportunities of the year. In lieu of such sub-95.88 weakness, further and possibly accelerated gains should not surprise with former 96.70-area resistance considered new near-term support.