MBS CLOSE: Extremely Flat, Range-Bound Week

by Matthew Graham

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Despite the 4 tick improvement on the day that leaves MBS just about as close to all time highs as we could ask for, the lack of excitement this week is a bit of a let down.  Sure, there was plenty of chopatility earlier in the week in MBS, but not only was it mostly confined to the range, prices actually ended exactly where they started on Monday! 

At least the boring and range-bound nature of the week made for plenty of predictability as the only real technical levels worthy of mention played important roles throughout the week.  101-21 became eerily supportive as the week progressed.  and 101-27 mentioned as a pivot point on Monday and Tuesday maintained it's technical significance as resistance by week's end.

In tsy's, the story was clearly about 3.31 and 3.38.  (3.31 is an intraday standpoint whereas 3.32 would get the daily nod).  And between those extremes you can see yields moving in almost perfectly symmetrical trend channels--more evidence of technical forces at work.  But although the 1 week chart looks fairly well distributed between highs and lows, how strong is 3.31 vs. 3.38 in the long term?

Yeah, the little teensie weensie red line (technical term) would be the 3.38 from the previous chart.  To be fair, we could have extended to show that it actually has been quite significant over the past months as an internal trendline, but at the end of the day, 3.31 seems a much more daunting line to cross than 3.38.  This is edified by the day over day futures chart which continued to be plagued by overhead resistance at 119-29.

In addition to what AQ mentioned earlier about MBS running into a price ceiling and yields across the board testing their lower limits of short term sustainability, this is another foreboding chart.  Not so much that a retracement is the higher probability (even though it is), but simply the absence of breakage is not encouraging.  Maybe, just maybe, mine and AQ's predisposition to recommend tightening up your personal hedge ratios over the past few weeks have something to do with the ongoing uptrend heading into tough resistance...

And that sentiment will likely continue as long as we are this close to highs without going over them...