Elliott Wave Count on the 10 Year Note and Yield

Dec 7, 2008: 1:13 PM CST

A reader asked for my take on a potential Elliott Wave count for the 10-Year T-Note and here is my current interpretation of the possible Elliott Wave structure building there.  Let’s look at the yield chart and then the price chart (which are of course inverse).

10-Year T-Note Yield:

The longer timeframe Elliott count is far more difficult (in terms of a monthly count) but perhaps the weekly count is a little more clear – at least this possible interpretation.

I’ve subdivided corresponding waves down into their logical fractals which meet the guidelines of EWT, confirming the count as best I can.

Wave 1 terminated in late 2006 to the 4.40% area, while Wave 2 retraced almost the whole amount of Wave 1, topping just shy of 5.20%.

Wave 3 is currently the largest wave, though the current Fifth Wave might rival it in length.  Three began at 5.20% and then terminated just below 3.40% before embarking on an “ABC” corrective Wave 4.  Notice the numerous positive momentum divergences that occurred during the Third Wave.  From a Fibonacci standpoint, Wave 4 retraced exactly 50.0% of the prior Wave 3.

So if this count is correct, we’re currently in fractal wave 3 (I would actually suggest fractal sub-wave 4, based on the daily chart possibly) of the larger Wave 5 move down.  Notice the significant new momentum low that formed on this fractal 3rd wave – that’s what we’d expect… only new momentum lows often occur in the larger third wave of the complete impulse.  It’s possible that we could be in for a rather ‘nasty’ final fifth wave if the structure continues.

Rates may begin to rise soon into the corrective fractal (small-scale) ABC up into the fractal 4th wave which could take us to but not much beyond 3.20% (yield is currently at 2.65%).  Afterwards, the final fractal fifth wave may take us down beneath the current 2.65% yield, but let’s see how and if the fractal fourth wave correction takes place.

To confirm the count – and for a little more perspective – let’s look at the 10-Year Note Price, which is unsurprisingly the inverse of the note price.

10-Year T-Note Price:

I simplified the count to only the most basic Elliott Count for clarity – compare this to the more detailed Price chart above.

In terms of the price, if Wave 5 is equal to Wave 3, then that would give us a terminal price target around $128 (Wave 3 being $16.00 which is added to the bottom of Wave 4 being $112.00).

Of course, in classical Elliott, if Wave 3 is the longest, we can expect Wave 5 to be equal to Wave 1, which has already surpassed that target.  Let’s let the common target be Wave 5 equality to Wave 3, and if that is surpassed, we’ll move to look at other Fibonacci targets and ratios.

Beyond that, just keep managing risk and looking for low-risk, high reward opportunities out there.

Corey Rosenbloom
Afraid to Trade.com

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