(TY) T-Notes Satisfy Three Reversal Requirements; Look to Sell

Trade Strategies, December 1, 2011; 7:55am

The past couple days' relapse below Mon's initial counter-trend low of 129.025 detailed in the 240-min chart of the now-prompt Mar12 T-Note contract confirms at least the intermediate-term trend as down, the most important by-product of which is the market's definition of yesterday's 129.305 high as a corrective high and risk parameter it now is minimally required to recoup to jeopardize the impulsive integrity of a developing downtrend that, for longer-term reasons discussed below, could expose significant losses directly ahead.

The daily chart of the Mar contract above shows the bearish divergence in momentum confirmed by the market's failure below 11-Nov's 128.30 corrective low that, in fact, breaks Oct-Nov's uptrend from 126.07. This divergence is verified on a 10-yr yield basis shown in the daily close-only chart below with this week's gains above recent corrective highs at 2.01% and 2.08% stemming from the exact (1.88%) 76.4% retrace of Sep-Oct's 1.72% - 2.40% rate increase.

This momentum divergence satisfies the first of our three reversal requirements. And with this week's relapse below an initial counter-trend low of 129.025 confirming that break as an impulsive structure and this week's earlier recovery attempt to 129.305 as a 3-wave, corrective affair, all three of our reversal requirements have been satisfied and warrant moving to a bearish policy and exposure. As a result of this concrete proof of a new developing downtrend, strength above a recent corrective high like 129.305 and certainly 23-Nov's 130.20 high can now be objectively required to threaten or negate this forecast.

Contributing mightily to a forecast that could include a major reversal lower is the market's rejection over the past week of 23-Sep's 131.30 high that was preceded a confirmed bearish divergence in weekly momentum shown in the weekly chart below. Combined with historically high levels in the Bullish Consensus (www.marketvane.net) measure of market sentiment that have accompanied past major peak/reversal environments, we believe the factors typical of a major peak/reversal threat are clearly present and have been reinforced by the past few days' decline.

These issues considered, traders are advised to establish bearish exposure at-the-market (129.03) with protective buy-stops at 129.31 ahead of what we believe could be a significant and sustained move south that could span months.

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