Given our recent admonitions about waiting for NFP as the most
important data event of the week, the directionality of today's rally
would lead us to half fear / half expect some sort of retracement.
Whether it's to be attributed more to technicals, profit taking, or
stock lever, or round 2 of Goldman's penchant for insanely accurate11th inning
NFP revisions. we've finally seen enough of that correction to discuss
it. However, it should be noted that the magnitude of the correction
is not nearly what we'd expect to see on the sort of inconsequential
and technically driven directionality of week's past. So once again,
although we're obligated to say it CAN happen as far as reprices are
concerned, it likely WON'T happen. Not yet anyway.
In the time it takes to type and post charts, etc..., the above
mentioned trendlines are continuing to hold, adding credence to the
"likely won't happen" sentiment on reprices. Indeed there does seem to
be a bit more than the standard "volatility within a range" explanation
for a spikey rally. If it weren't for tomorrow's NFP having more
market moving power than probably any report of the week, I'd be even
more confident in making the call to adjust our trading range
expectations higher. But please feel free to read something into the
fact that the topic is even being discussed. All week, the message has
been "that's nice, but gotta wait for NFP..." And although that's
still very much the case, it's no longer black and white. Don't get
too excited, but with each passing moment where prices hold in the
101-20's, the more significant today's rally becomes versus the
impending NFP print.
The default expectation on such a rally would be for a much more
significant retracement than a mere 8 ticks, especially considering
that the rally is BOTH fairly robust with its half point gain on the
day, AND fairly high in the sense that it's occurring at nearly all
time high historical levels. For context, all time highs were 102-07
for 4.5's--just about half a point higher than current trading... But
not only has the price correction been minimal, but that has been
equally true for the yield curve and the stock market. Volume is high
all across the board with a prime example being 10yr contracts cresting
the 1 mln level before 3pm marking. The day before NFP last month was
half that, NFP day itself only 250k more. Today's volume even with
time left to trade is already higher than the highest volume day last
month, 9/16, when stocks hit multi-month highs.
This volume "stuff" is a big deal. Think of it like validation for
the movement. It doesn't cement the new price levels in place by any
means, but it DOES indicate that THIS IS NOT "JUST ANOTHER BIG PRICE MOVEMENT WITHIN A RANGE THAT CAN IMMEDIATELY BE DISMISSED AS INSIGNIFICANT!" Indeed
you may rejoice... Today means SOMETHING. But to bring today's
bullishness together with previous commentary, we'll know a lot more
about exactly what that "something" is by tomorrow. If something
continues to be bullish, here's an idea of the next big trip-wire for
tsy bullishness... As well as a yet-to-be-seen phenomenon in the stock
rally of recent months that adds to today's significance (and will
intensify or dilute that significance depending on its behavior
tomorrow).
MBS, Tsy, and LIBOR Quotes