Anyone catch the reference to the "secret line" on Friday? I know most are eager to get out for the weekend, so by the time a closing commentary makes it to you, the chances of getting read are diminishing. Nonetheless, I was hoping to get a few comments on the crazy chart from Friday's close. In case you missed it, or otherwise are not interested in clicked through to a previous post, here's the chart:
Believe it or not, most everything on this dang thing was explained, even if a bit too much eccentricity made it through. Actually, every line or overlay had a label. But the eccentric contingent was brought up by the magenta and white lines. Magenta might have been somewhat understandable in that it referred to spikey trading action taking place on Friday afternoons through Monday mornings. But the "secret line" wasn't defined in any way except as being, well, "secret." So imagine my surprise when I took a glance at the final chart today:
For those of you that are cancelling your David Blaine season tickets in favor of sitting in front of the blog 24/7, I have to admit that when I drew the secret line, I did not know that prices would end exactly at that level today. That said, I was hoping that it would mean something in terms of support... There were quite a few reasons for this amidst the numerous voices competing for attention in my head on Friday night. Ultimately, I think AQ's chart in the last post explains it pretty well without words:
Simply put, it was very plain to see (look back at the top chart now) that 100-13 was the upper end of a longstanding sideways trend for us. But in a short period of time, we broke through that level, confirmed the break, and shot rather meaningfully upward along with declining stocks and similarly epic moves in other market sectors. So to me, the old range was dead. But with the most epic price levels in both tsy's and MBS making a guaranteed argument for the upper end of the range (tsy's couldn't break 3.3 on the downside and MBS couldn't break 100-28 on the upside), coupled with the recent bullish vibe suggesting a 100-13 level might be too low for an intermediate range floor, I went looking for something else.
Why not just go with 100-13? Prices on Friday bottomed there TWICE. Am I crazy? Forget that for a second and consider the argument I'm making with the magenta lines. Yes, 100-13 looks like the better choice based on Friday, but if we're going to take a look at discounting weird Friday price action, even if for no other reason than hypothesis testing, where do we land if we discount this most recent Friday's similarly spikey movements? Right on the secret line... AND with a double bottom from Thursday's close... AND with further, if somewhat noisy at times, support on the first of the month into the morning of the second. AND FINALLY, it was the highest level reached in August--the only resistance encountered after breaking 100-13.
So I was just hoping it meant SOMETHING; preferably something in the form of support underfoot. And though it remains to be seen if it can fills those shoes into the rest of the week, it certainly did today. Not only that, but it did so in grand fashion and held that ground even as the fixed income castle crumbled around them. Translation: MBS gained today even as tsy's suffered. Spreads tightened by an uncommon amount. Stocks didn't do much by the way of improving, but were improved nonetheless.
Bullet point recap and look ahead:
- 3yr note auction healthy, but half the bid wanted a yield 6bps higher than previously traded yield. So maybe not Santelli's "A," but more like a solid B. Still, not much of a market mover.
- Consumer credit -$21 bln. record decline and crushed expectation.
- Fed voted to leave discount rate unchanged.
- another auction tomorrow-- 10yr notes at 1pm
- lots of speakers: obama in the AM as well as Fed's Evans. Fed's Fisher in the PM
- bit of a back seat for econ data with noteworthy inclusions being MBA applications and beige book.
Despite today's underwhelming reaction to 3yr results, don't assume tomorrow's 10yr won't have major movement potential.
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