Posted on Feb 06, 2023, 08:01 by Dave Toth

Overnight’s relapse below 30-Jan’s 114.055 low and our mini risk parameter discussed in Thur’s Technical Webcast nullifies last Wed’s bullish divergence in short-term momentum and resurrects the peak/correction count introduced in 30-Jan’s Technical Blog.  Stemming from Fri’s nonfarm payroll report, this relapse defines Thur’s 116.00 high as the latest smaller-degree corrective high the market is minimally required to recoup to negate this, at least interim correction lower, but given the close proximity to 19-Jan’s more critical 116.08 high, we’re maintaining 116.08 as our short-term but pivotal bear risk parameter the market needs to recoup to reinstate and reaffirm a major base/reversal count.  Until and unless this market recoups 116.08, we believe at least a larger-degree (B- or 2nd-Wave) correction of Oct-Jan’s entire 108.265 – 116.08 rally is in force.

On a broader daily basis, the chart above shows what we believe is a complete 5-wave rally from 21Oct22’s 108.265 low.  To truly break this uptrend, commensurately larger-degree weakness below 30-Dec’s 111.28 larger-degree corrective low remains required.  As this level is back in the middle-half bowels of the past quarter’s range, it’s value as a preferred risk/reward level around which to base directional decisions is compromised.  111.28 is just not an efficient, objective level.  Indeed, IF the relapse from 19-Jan’s 116.08 is just a B- or 2nd-Wave correction within a much broader base/reversal process, we believe it would be from the immediate area around this 111.28 prior 4th-Wave correction of lesser degree and the neighboring (111.21) 61.8% retrace of Oct-Jan’s rally where we would be anticipating a countering bullish divergence in momentum to reconsider BULLISH decisions, not non-bullish decisions like long-covers for longer-term players.  Per such, even longer-term institutional players are advised to rely more on 19-Jan’s 116.08 high as a key level around which to toggle directional biases and exposure rather than 111.28.

On a 10-yr yield basis below, the opposite is in effect following today’s bullish divergence in daily momentum above 30-Jan’s 3.574% initial counter-trend high that defines 19-Jan’s 3.319% low as the end of at least the decline in rates from 30-Dec’s 3.907% high and possibly a 5-wave sequence down from 21-Oct’s 4.337% high.  If correct, this count warns of a (B- or 2nd-Wave) correction to the 3.79%-to-3.93% area or higher in the weeks ahead.  To negate this call and reinstate a major peak/reversal process in rates, this market obviously needs to relapse below 3.319%, which serves as our new short-term but key risk parameter.

From an even longer-term perspective, the weekly chart of the contract below shows the magnitude of the new secular bear market, any base/correction/reversal attempt of which is likely to include corrective setbacks that could easily be extensive in terms of both price and time.  In 2020/2021’s peak/reversal process and after an 8-mponth, 10-figure decline from 140 to 130, the market spent FOUR MONTHS retracing 50% of the initial 140.13 – 130.25 decline before the 3rd-Wave brunt of the reversal took hold.  After a 3-month, 8-figure recovery from 108.265 to 116.08, a (B- or 2nd-Wave) correction to the 111-handle is easily within the bounds of a broader base/reversal process.  And until/unless arrested with a bullish divergence in momentum and evidence of only 3-wave corrective behavior down, we also cannot eliminate from contention the broader bearish prospect that Oct-Jan’s recovery attempt might be just a (4th-Wave) correction within the secular bear that’s poised to resumed to new lows below 108.265.

These issues considered, both short- and long-term traders are advised to move to at least a neutral if not cautiously bearish stance ahead of what we believe will be multi-week weakness to the upper-111-handle or lower.  A recovery above 116.08 is required to negate this call, resurrect a major base/reversal count and warrant a return to a bullish policy.

Market Insights Senior Analyst

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