MBS CLOSE: Near Best Levels In 2 Months, But...
IT STILL DOESN'T MATTER!
Despite some selling the the AM, summertime range-bound flows allowed prices to drift toward the higher end of that range. But that's really all this is... Probably...
We said in the afternoon commentary that we'd dicuss the weekly chart with respect to a pattern. Many of you may see the regularity of the uptrend over the last two days (beginning yesterday afternoon). But I'm not especially interested in that. What I am interested in is telling you that for all the perceived volatility, the entirety of the week's trading has been in a range from 99-26 to 100-10. What will you do with this information?
I'd definitely be considering that prices look to be at the top of their range right about now and that we have not moved beyond the lows of the week in tsy yield either. So in the sense that "everything is rang-bound," etc... It looks like we're at the top of the range. To whatever extent you vote for a status quo in that regard you should weight your lock bias accordingly. But a slightly farther look back in time shows that there is indeed some more room to run even within the confines of the broader range...
Statistically, that's not as likely to happen as a retracement though, so even though there's a slew of fundamental considerations that may cause you (and even me) to consider more potential upside, the numbers in and of themselves are fairly clear in suggesting a greater predisposition to lock. We've only moved higher than current levels TWICE on rallies since the dark days began.
But now enter the whole problem of the non-technical considerations. Everything's dependant on stocks for reasons previously stated. If the rally stalls out, we obviously have some more room to run as seen in the chart above. But the MBS chart in and of itself is not as important as looking at it in the context of the yield curve, so would there be more room to run there as well? Take a look at futures and let us know what you think...
If stocks fall, we could squeeze out some more gains in the short term, but it's going to take a lot more than the current combination of participation, volume, and price movement before I'd be willing to bet anything less than 50% on the status quo, Par-nertia, ranges persisting, and a greater-than-normal disconnect from fundamentals.
This close is intentionally short for the following reasons:
- Yesterday's Close still very pertinent. Not much to add. read if you like
- Check out Fed MBS Purchases.
See you in the morning.