MBS CLOSE: Little Changed In The PM, Little Changed This Week

By: Matthew Graham •

More ranges, more pivot points, more trends, more chopatility, more uncertainty, more of EVERYTHING you've come to know and love about 2009.  The conclusive tone is used here because nothing changes, nothing will change, and nothing CAN change until some time into the new year.  That's it.  It's done folks... 2009 is but a fading memory as of 5pm today.

The FOMC statement was our last big chance for a piece of data or a headline event to come along and exert such a force on MBS and the yield curve that they'd be nudged off their long term ranges.  And though it came closer and gave a better head-fake than any event of the last several months, it failed to confirm, and where do we end up?  Let's run down the list:

  • MBS spreads are in a constant state of flux so they get a pass from the "oohs and ahhs" inspiring technical level game
  • 10yr tsy's smack dab one bp under the highest yields in 4 months with the exception of unconfirmed FOMC head fake day.
  • Yield curve, a dead even 275.000000 bps.  the round number most referenced as the all time steepest.
  • Stocks, dead center of the trading range that has been extremely narrow and extremely range bound ALL of this month and MOST of last month.

Here's a visual of the week with attention paid to the pivot point.

Same trading ranges mark the very beginning and the very end of the week.  FOMC came, it saw, it head-faked in ANTICIPATION of the release, and once it was released, it left it's indelible imprint on trading: a colorless, odorless, weightless, meaningless imprint... devoid of surprise or even reason to trade the markets differently enough to break any of these ranges... 

And the pivot points in context of the bigger picture:

As far as "return to the float boat," I don't say that to create EXTRA hope or optimism, but rather to say that the prices need to break to the upside of that pivot (downside in tsy yields) to think about getting friendly with the cap'n (of the floatboat).  And this isn't to say LOCK EVERYTHING!!! but rather, whatever your current allocation between lockers and floaters, I wouldn't be changing it to the float side until we're moving towards and through that pivot.

Want another sentiment indicator that is currently giving NO HINTS as to which way it will go?  Happy to accomodate:

That's right folks...  Far be it from stocks to want to show any signs of life whatsoever.  They're apparently pacing between the two walls of their cave rather than just sleeping right through winter hibernation, but any way you slice it, they're certainly not out starring in some rollicking nature documentary, catching salmon in rushing rivers, or doing other hilarious bearish things... 

But even their apathy tells us something.  It tells us that whichever direction they move (when they finally move), stands the chance of being a bigger movement than the previous wave patterns in the 6 month long rally.  In other words, it's either a bull flag (consolidating before rallying further), or a quintuple top-something or other (repeatedly cracking one's head into resistance at 1110.00 before giving up and moving lower).  Only time will tell.  Magic 8 ball says "outlook uncertain.  Why aren't you on vacation too?"

 

Why?!

Because AQ and I love you too much to leave you on the holidays.  Just when you think you have the markets pegged, they'll do the opposite.  And though that never happens for us (note sarcasm), we'll be around just in case something interesting happens and we need to throw out the bat signal and get you guys into the lock-mobile.