Posted on Aug 29, 2023, 08:28 by Dave Toth

In 23-Aug’s Technical Blog we discussed the developing potential for a bullish divergence in very short-term momentum.  The 240-min chart of the now-prompt Dec contract shows last Thur/Fri’s poke above a very minor 110.115 corrective high from 18-Aug that confirms a bullish divergence in very short-term momentum.  This mo failure allows us to conclude 22-Aug’s 109.095 low as the end of the decline from 10-Aug’s 112.14 high, nothing more, nothing less.  And in this regard, last week’s resulting 109.095 low may be considered a mini parameter from which short-term traders can objectively base non-bearish decisions like short-covers.  Against the backdrop of the secular bear market however and the fact that this recovery attempt has yet to retrace even a Fibonacci minimum 38.2% of even this month’s portion of the secular bear trend, intermediate-to-longer-term traders are advised to first approach this recovery as another corrective hiccup within the secular bear trend.

As the roll from one futures contract to the next often times results in some ambiguities on an active-continuation basis, the 240-min chart of 10-yr yields below shows last week’s bearish divergence in short-term mo defining 22-Aug’s 4.366% high as THE high rate this market needs to stay below to maintain a broader peak/correction count.  Needless to say, a recovery above 4.366% will reinstate the secular trend higher in rates while commensurately larger-degree weakness below 08-Aug’s 3.982% corrective low is required to confirm the next level or scale of weakness that could expose a more protracted correction or reversal lower in yields (and higher in the contract).  What the market has in store for us between 3.982% and 4.366% is anyone’s guess, and herein lies the always important issue of technical and trading SCALE and identifying risk parameters commensurate with one’s personal risk profile.

On a broader scale, might the past 4-1/2-months’ resumption of the secular bear trend in the contract and rise in rates be the completing 5th-Wave of a massive Elliott sequence dating from 2020’s price high and yield low?  Yeah, sure.  HOWEVER, proof of strength in the contract above intermediate- and larger-degree corrective highs at 111.29 and 113.08 remain required to even introduce such a count.  On a yield basis, these key thresholds cut across at 4.01% and 3.752%.  Until/unless this market crosses these specific thresholds, the simple fact of the technical matter is that the trend in the contract is down on all scales and should not surprise by its continuance or acceleration.

The weekly charts above of the contract and below of yields show the magnitude and dominance of the secular bear market in T-Note prices and rise in yields.  As the market always leads the Fed, any talk of the Fed finally ending their tightening will likely prove premature until/unless the market breaks below at least 09-Aug’s 4.01% and probably 19-Jul’s 3.752% corrective low.

These issues considered and while very short-term traders have been advised to pare or neutralize bearish exposure because of last Thur/Fri’s bullish divergence in very short-term momentum, a bearish policy and exposure remain advised for intermediate-to-longer-term traders with a recovery above 111.29 (below 4.01% yield) required to pare or neutralize exposure.  As for the contract’s remaining downside potential, how long is a length of string?

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