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Tighten S-T Bull Risk in Bunds Within Range

Posted 11/06/2018 7:50AM CT | RJO Market Insights

In Thur’s Technical Blog we discussed that day’s admittedly very short-term mo failure below 159.83 as an early warning that 26-Oct’s 160.90 high might have completed a 5-wave rally from 05-Oct’s 157.33 low.  Further erosion to the (159.54) 38.2% retrace of Oct’s 157.33 – 10.90 would seem to reinforce the relevance of that 160.90 high, but we’re still wrestling with the EXTENT of this counter-trend move.  Given this week’s bounce, we suggest tightening short-term bull risk to Fri’s 159.45 low where a break would reaffirm the intermediate-term slide to intra-range depths unknown.

Euro Bund Dec '18 240 Minute Chart

Euro Bund Dec '18 Daily Chart

As with many intra-range conditions where whipsaw risk is a challenge, we believe a deft flexibility will pay dividends.  For on a daily basis above, we believe the Dec contract’s reversion to the middle-half of a 161.18-to-157.33 lateral range that has constrained it for the past four months raises the odds of aimless whipsaw risk.  From a longer-term perspective shown in the weekly chart of the most active futures contract, a broader base/reversal-threat condition from the lower-quarter of the past two-year range remains intact where intermediate-term weakness below 159.45 arguably exposes a buying opportunity from a longer-term perspective.

It’s clear that 05-Oct’s 157.33 low is one of major importance and a key risk parameter the market is now required to break to mitigate a broader base/reversal count.  Equally clearly, a recovery above 26-Oct’s 160.90 high is needed to reinforce a broader bullish count.  What price action lies in between these longer-term directional triggers is anyone’s guess.  Our guess or bet is aimless whipsaw risk that could easily include continued interim weakness below 159.45 that would subsequently need to be stemmed by a countering bullish divergence in mo to tilt the short-to-intermediate-term directional scales higher and provide a favorable and more objective risk/reward buy.

Euro Bund Weekly Chart

If you’re looking for what could trigger a quality-flight, base/reversal count in bunds, look no further than the DAX Index where the weekly log scale chart below looks abhorrent.  The past five months’ RESUMED decline can look back on four months of preceding peak/reversal-threat behavior following 02-Feb’s bearish divergence in momentum below 12,731.  The bear survived a (B- or 2nd-Wave) corrective retest of the high before resuming this major correction or reversal lower following 10-Oct’s break below Mar’s 11,706 initial count-trend low.

The decline from 22-May’s 13,206 high is either the C-Wave of “just” a larger-degree bull market correction OR the dramatic 3rd-Wave of a major reversal lower that could span months or even quarters more.  As somewhat of a reference point, even just a 1.618 progression of Jan-Mar’s initial 13,596 – 11,706 decline from May’s 13,206 corrective high doesn’t cut across until the 10,366-area.  And if this is a 3rd-Wave, we believe it can get much, much worse than that with accelerating, even relentless losses straight away.

A recovery above 17-Oct’s 11,838 corrective high is minimally required to jeopardize the impulsive integrity of this dire bearish count.  Such a rebound could be associated with a steeper relapse in bunds.  Until such a rebound is proven however, the DAX Index should be considered vulnerable to further and possibly steep losses that would seem to inhibit any sort of downside traction in the bunds.  We will be watchful for a countering bullish divergence in short-term momentum in the bunds to flip the intra-range directional scales higher.  In lieu of such, further lateral-to-lower prices remain anticipated with a break below 159.45 providing this count’s next reinforcing evidence.  A recovery above 160.90 is required to negate this call and reinstate the bull to what could be steep, if intra-two-year-range gains.

DAX Weekly Chart

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