(TY) Navigating Major T-Note Peak/Reversal Process

Technicals, October 28, 2011; 7:50am

Yesterday's break below 12-Oct's 127.165 low shown in the daily chart below reinstates the developing downtrend from 23-Sep's 131.30 low. This is clear. And by virtue of this resumed weakness, the market has defined Tue's 129.095 high as the latest corrective high and risk parameter this market is now required to recover above to defer or threaten this bearish count, an alternate scenario we must acknowledge in light of the developing potential for a bullish divergence in momentum.

Concern over this divergence threat is also shown in the daily-close, log scale chart of 10-yr yields below, where the developing potential for a bearish divergence in daily momentum is clear as is the possibility that the past couple days' rate rise might be the completing 5^th-Wave to a 5-wave sequence up from 22-Sep's 1.72% low. The analogous failure point to the 129.095 high in the Dec11 futures discussed above is 25-Oct's 2.11% corrective low on a 10-yr yield basis.

The combination of a confirmed bearish divergence in weekly momentum amidst the highest Bullish Consensus (www.marketvane.net) level (77%) that that accompanied Nov'10's major peak and reversal shown in the weekly chart above remains key to a major peak/reversal environment currently. And if yesterday's break below 127.165 is part of a more extended wave sequence lower, then the market should now sustain losses below at least former support-turned-resistance like the lower-128-handle, and certainly below Tue's 129.10 corrective high. Additionally, such interim bear market recovery attempts should be labored, corrective bear-flag-type structures. Behavior on recovery attempts that deviates from that like a sharp, impulsive spike to the 128-1/2-area would be the first indication that this week's break may be that completing 5^th-wave down ahead of a larger-degree but still bear-market correction higher that could easily produce a pop to the 130-handle.

These issues considered, a bearish policy remains advised with strength above roughly 128-1/4 required to defer this count and strength above 129.10 sufficient to warrant tabling a bearish position for the time being and looking for a preferred risk/reward condition- perhaps in a 130-handle- from which to reset this bearish policy. In lieu of strength above at least 128-1/4, former lower-128-handle support is expected to now provide resistance ahead of further and possibly steep losses.

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