T-Bond futures have been flaccid since early June, presumably correcting the ten percent rally that began nine weeks earlier. But is it merely a correction?  From a hidden-pivot standpoint, the last few days have taken a heavy toll. Recall what I wrote here in early June: “After spiking to within three ticks of our hidden-pivot rally target at 119^20 yesterday, the futures corrected with equal ferocity, ending down on the day. Friday's top has the potential to be an important one, but it would take a decline to below 115^19 to corroborate this.”

Several subscribers, having noticed that this week’s lows breached 115^19, wrote yesterday to ask, What next? For now, we remain bullish on the long-term, but more cautiously so than before, and we are now neutral on the intermediate-term trend. There are several reasons for this, all of them technical. For one, as I’ve just noted, the September 30-Year contract has dropped beneath 115^19. That’s not a hidden pivot, but rather a prior low whose breach has created a bearish impulse leg on the daily chart. Technically speaking, this is the most significant negative event for the 30-Year in at least two years, so we can hardly afford to ignore it.

(Click on image to enlarge)

As you can see in the chart above, the bearish AB impulse leg exceeded three prior lows without an intervening rally of more than a day’s duration. The decisiveness of this directional change therefore qualifies as impressive, and it would take a rally to at least 119^12 to undo the damage it implies. Moreover, we see that the accompanying stochastic signs are regular – i.e., non-divergent – suggesting that the downtrend that generated them is likely to continue, presumably for at least the intermediate term.

To put a bullish spin on all of this one could infer, simply, that the benchmark 10-Year Note looks comfortable hanging out near 4 percent and that nothing worse than a lengthy consolidation awaits holders of longer-term paper. If, on the other hand, long-term rates are about to rise, that would have profoundly bearish implications for an economy fueled almost entirely by rising levels of debt.