The headline may be the most exciting thing about today and does much to counter the suggestion that the journey is more important than the destination.  Indeed, today's destination is much more of a conversation piece than the journey.  In the interest of delaying what may or may not be perceived as "rain" on your respective parades, we'll go a bit out of order and start with the medium term picture of MBS showing a higher close than early October.

 

Like we said, one has to go back to May 6th to find a higher close in 4.5 MBS, although you be the judge as to whether or not rates on May 6th are the same rates you're seeing today...  No seriously, I'm not going to pull up the old rate sheets, so please tell us!  Regardless of the "personal best" for the 2nd half of 2009, (here's the rain...) not only is it not likely to mean much yet, but outlook for rates and MBS remains cautious this week.  The upper limits of the long term range will continue to suggest this until they're meaningfully broken, and as you can see in the white circle below (no belly bombs people!), nothing is meaningful yet...

The obligatory long term caution aside, MBS did depart from last week's sideways trend after mid-day today...  You can see the 101-27 infection point from last week come into play quite noticeably and then give way to price improvements into the close. 


Similarly linear and range-bound improvements in tsy's that took information from last week's range, except in tsy's case, they used the upper limits of the yield range at 3.38 as a pivot to go sideways in higher yields ahead of the auction.  Even after the auction, 3.38 was still in play until almost 2pm when it finally broke, showed off the goods with a supportive bounce sending yields lower to the next stop on the Technical Express...

In the long term charts as well, tsy's show themselves to be similar to MBS in some ways, and unique in others.  To wit, like MBS, tsy's have been greadually improving since June as well as doing some recent narrowing of their trading range.  But unlike MBS, not only are tsy's not anywhere near their all time low yields (thank MBS spread tightening for that discrepancy!), they are moving about a very long term and monumental pivot point in 3.5.  Interesting that as the last month of the year approaches with 10yr yields having straddled 3.5 over the last 5 months to think back, well, about 5 months ago to the consensus economic forecast that pegged year end yields around 3.5...

If it's not clear already, it probably should be...  THE MARKET CONTINUES TO EXPERIENCE ITS MOMENTS OF INERTIA ON THE SEEMINGLY IMPORTANT FUNDAMENTALS WHEREAS THE TRUE FORCES OF NATURE REMAIN THE TECHNICAL PRICE LEVELS THAT COMPRISE VARIOUS RANGES.   With no pride whatsoever, I'd ask you to read that again.  In fact, read it as many times as you like until it's like second nature, because even if it's not second nature to you, it certainly is to the markets that have such a profound influence on your business.

The term "various" ranges is used because THERE IS NO ONE ALL-ENCOMPASSING RANGE.  If it were that easy, anyone who knew what the range was could make money, and "profit for all" just won't do!  So there is a lattice-work of small and medium ranges--some horizontal, some directional--within and even slightly outside the most informative long term range trends...  For instance, we can plainly see the inflectional nature of 3.5 above, but zooming in to a medium term view, we have a couple breaks to the upside, just as 3.3 is broken to the downside.

Without acknowledging that 3.2 and 3.56 (not shown on chart) are also informative to the range, this simply illustrates that "range bound movement between technical price levels" is more of a framework of generalities than a set of hard and fast rules. In other words, "just because it did before, doesn't mean it will again..."  All we have are likelihoods suggested by the confirmation or rejection of past trends.  The more a past trend is confirmed, the more important it will be when it is no longer confirmed...

As for one of many technical analyst's most widely used securities, there are some mixed signals in 10yr futures as far as considering strength vs. weakness...  In one respect, we are noticeably improved from the lows, and in much more linear fashion than MBS or spot yields in terms of the range between highs and lows.  Very technical indeed... Not only that, but the parallel boundaries of this trend channel have acted as reliable intraday support thus far with no clear tests.

But as the chart probably makes clear, the horizontal trend at 119-29 is looking equally as potent.  In fact, upon cruising up to the 50,000 foot view, probably more so...  Even farther in the past than May 2009, levels around 120 have shown themselves to be significant for tsy futures.  And although we're not talking about 119-29 per se, we might as well be if we're looking back over a year.  In the grand scheme of things, 20 ticks of movement in one direction or another means very little given the ranges of this long term chart.


It's the same old story folks...  Uncertainty generally leaving the market in the long term, but ebbing and flowing in the short term...  Long term ranges continue to narrow...  Prices/yields will have to move decidedly to one side or the other.  And we're perennially chasing the carrot of "more guidance" before deciding which direction we like best this minute, this week, this month, etc....

But hey folks!  On the bright side, THIS WEEK is relatively easy as far as fundamentals on which to keep our eyes...  5's and 7's auctions yet to come....  2's were generally thought to be best...  many analyst's see correction in bonds in the short term because of that, but nothing earth-shattering.  Even then, it would be up to those auctions to actually be weak in order for that to bear out. 

Additionally, there's FOMC minutes, which are probably even more significant than anything but a drastically deviant auction...  Whatever the case, tomorrow is data rich.  Anything can and will, but still probably won't happen (or will it?).  Ha!  No seriously...  There's a lot going on tomorrow...

TOMORROW's DATA AND EVENTS

  • GDP at 830 AM
  • Corporate Profits (3rd tier data) at 830
  • Case Shiller at 9am --  more important than usual with the renewed concerns on housing + better than expected existing sales today
  • Consumer Confidence at 10AM
  • FHFA Index at 10
  • State st confidence index at 10 (3rd tier)
  • 5yr note auction at 1pm
  • FOMC minutes at 200pm (ish...  can vary)

Ha!  beat that day's worth of data or it's percentage of the week's total data given the 1.5 trading days missing at the end of the week!  Hard to find a more potent day on the calendar this year....