MBS CLOSE: Slow At First, Gains Accelerate Into Close

It took a while for markets to decide just what to do after the 5 year auction results at 1pm.  Whether there was any actual level of "indecision" present is unknown and perhaps unimportant.  More likely, what we see in today's charts is the effect of a "short covering opportunity" being exercised amidst the generally duration-positive month end trading sessions. 

Talk about "duration-positive!"  Whoo...  2s v 10s approaching 260's again is pretty much unheard of these days.  Sure, from a historical standpoint, it's about as steep as the Matterhorn looks on a 5-year-old's first trip to Disney, but in the context of the recent 280's we've seen, to close out the day at 271.4 is quite the flattener.

But, of course, we'd be neglecting our own admonitions if we said we were reading much into anything that transpires this week.  Buzzkills notwithstanding, it's always nice to see green though...

Couple things going on here on the short term chart that dovetail into a discussion of the bigger picture.  First, it might seem like volume is markedly higher today than yesterday, and although that is the case, the question we must ask is "higher than what?"  And you'll see in the following chart that in the big picture, "what" was the second lowest day of volume in December, leaving today struggling to find a first floor office on the skyscraper of significance.  Also, not the reasonable degree of regularity with which 10yr yields found support at 3.85 earlier today.  Yeah, the low volume makes everything less meaningful, but we have indeed seen  3.85 before, at least those of us with excellent long term memories.

Rest easy... I'm not going to call attention to some long term range at 3.85 to 3.2.  But it would make for a nicer chart some time in 2010 (hopefully not sooner) when and if we test 3.85 again to not have some mysterious violation of the trend right at year end.  Heck... We'll probably forget all about the current low volume and just consider 3.85 another showing of support when the time comes to take a 4th look at it.  Lastly, you might notice that with the small uptick in volume, we've had small improvements in bonds.  Even if that doesn't inspire glimmers of hope, at least it can show you a bit of the VWAP (volume-weighted-average-price) effect we've recently been discussing.

I found myself wondering how the stock market has been doing over the past few days, so I pulled up a chart. 

Yep, we're still broken-out of the topside of the recent range bind, and although volume remains too low to infer significance, if you were looking for some new technical trend, the yellow-dotted line might be a candidate.  But all this is excess discussion forced on a dearth of data and volume.  *** Clark is already hours into his research to find out if Seacrest's hair product will have the same effect on whatever that is on his head as he gears up to drop balls in a few days.  In more ways than one, that's when the real party starts.  But the only party I care about is the one where the markets slowly but surely begin to mean something again.

Bored Yet?  Don't be!  AQ put together some KILLER CHARTS and WRITE UP ON CASE SHILLER.  You should totally read it.