(TY) 10-yr T-Note Erosion Reinforces Bearish View; Sell At-Market (128.03)

Trade Strategies, October 25, 2011; 6:45am

Overnight's break below the past few days' support around 128.07 has, in fact, confirmed the intermediate-term trend as down and raises the odds that 18-Occt's 129.095 high is the end or upper boundary of a corrective structure consistent with our preferred broader bearish count. Because the market has yet to break 12-Oct's 127.165 low detailed in the 240-min chart, we cannot conclude that that 129.095 high completed the correction, as opposed to just defining its upper boundary ahead of further lateral chop. But we DO know that until altered by strength above 129.10, this month's recovery attempt is a 3-wave pattern that is consistent with a broader bearish count that ultimately exposes new lows below 12-Oct's increasingly key 127.165 low. And with the market confirming the lowest prices overnight for the decline from last week's 129.095 high, strength above at least overnight's 128.16 high is needed to jeopardize the impulsive integrity of the developing downtrend that could accelerate straight away. Per such, traders are advised to establish bearish exposure at-the-market (128.03) with very conservative but objective protective buy-stops at 128.165.

The daily chart above shows the developing downtrend since 07-Oct's bearish divergence in momentum and former 129.06-area support holding its ground as new resistance within this developing bear trend. And with the unique combination of a confirmed bearish divergence in weekly momentum amidst the highest bullish sentiment accorded this market since that that accompanied Nov'10's major peak and reversal shown in the weekly chart below, we continue to believe that a similar major peak/reversal environment is at hand with strength above at least 129.10 required to threaten this count.

In sum, a bearish policy remains advised with strength above 129.10 the minimum required to defer or threaten call. A break of 12-Oct's 127.165 low is fully expected and may produce steep, even relentless losses thereafter. Per this setup, traders are advised to establish bearish exposure at-the-market (128.03) with tight but objective protective-buy-stops at 128.165.

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