MBS CLOSE: Livin' On The Edge

How Many Times Have We Been Here?

"Here" in this case, means that magical range between 99-18 and 99-21 on the 4.0% Fannie 30 yr MBS. This price level, represented with a horizontal line though the price movements of the past 4 months, is by far and away the LEAST CROSSED horizontal line one can draw anwhere near the middle of the range. At no time in the past few years have we seen a horizontal price level remain intact as perfectly or for as long as this one. It's more of a curiosity than anything, that it was at (in the case of "book" close at 3pm) or near (in the case of "going out levels") this price range that we closed out today.

FYI, we're talking about the longer line on the bottom. As you can see, we've been here before. Each time, the more potent use of the technical analysis is to use it as a "trigger." In other words, the existence of the floor doesn't mean it won't be broken, but rather, when it IS broken, that event is statistically significant. And the chances of rising above that level again in the near term are worse than 50%. of course, in this headline rich environment, Uncle Ben could come along and say "OK OK OK, we'll buy some more treasuries..." and all this probably goes out the window. Whatever the case, we have certain requirements to decide on a firm "violation" of the trend. Just generally, we'd like to see 3 days of more than a 3% violation, including the day of the cross, which would not include today since we only crossed by 1 tick, before considering this a true "violation." Regarding tomorrow, I'm throwing it out as it will not be even remotely similar to a normal day in markets. This means that floaters, IF AND ONLY IF you got dinged for some nasty reprices today, can float on until Tuesday, when a semblance of normalcy returns. If we close move below this level on Tuesday, it may be time to take a look at some more locking. Whatever the case, if you don't have the money to burn, just remember when you're reviewing your personal GUT-FLOP strategy that you know exactly where the market is right now.

Forgetting that conversation for a moment, the ingredients are in place for MBS to continue to defy this floor, and instead create a new technical trend with a much larger range. What remains to be seen is how the Fed will respond to today's meteoric rise in treasuries, if at all. If this "gone on far too long" stock rally turns out to be the mother of all dead cat bounces, and treasuries get enough love to hang out around 3% for the better part of the rest of the year, this will likely be the case. Seems like AQ and I have been talking a lot about range-trading lately anyway. If the treasury market can just get enough sea legs to avoid going overboard, it makes sense for this new potential trend to take over. Do we have any evidence so far of relatively repetitive trading patterns between the same highs and lows? Perhaps...