MBS CLOSE: Positive End To Great Week Despite Losses

By: Matthew Graham •

Today's price movement wasn't so much the story of the week.  In and of itself, it was either meaningless or slightly weak depending on your point of view. 

  • 4.5's ended down a tick at 100-31
  • 4.0's ended down 5 ticks at 97-31
  • The 10yr was off a tick with a yield of 3.60
  • Stock indexes down over 2% across the board

That one tick chance in 4.5's wasn't for lack of trying however.  MBS chopped around a fair amount (albeit in a narrow range) before settling at 100-31.

 

And in the 10yr, 3.62 lived up to the hype!

 I rarely, if ever, give props to my own posts, and it's not like I "called the day" as far as where prices would end, but that said, the CHARTS from last night's close, were pretty dang cool in the context of today's trading.   That 100-31 level, for instance, should look pretty familiar.  And 3.62 was maybe even better.  Here's yesterday's chart:

The mention of volatility seemed to be timely as well, considering the chopatility today.  AQ and I talked to each other quite a bit about 3.62 this week and I know his notes mentioned the significance more than once.  Cheers AQ!  All victory dances aside though, I must reiterate, there are no crystal balls here.  These are pretty epic levels and prices had been moving in rather technical patterns, so it just made sense to pay attention today.

What's that?  You want more?

How bout them stock charts from yesterday?

It WAS, IN FACT, "TIME TO TEST" the range in stocks today as well.  Obviously with 2% drops in major indexes, we're back into the thick of the Nov and early Dec range for the S&P. Of course, we have to keep in mind that this is merely the first day of "confirmation" (technical analysis jargon for the first whole trading day that confirms a shift in trend that occurred in the previous session).  And though some chartists might be content to call today the confirmation, I'd want to see at least one more day of good behavior in all three of these shifts in trend. 

These things have an occasional habit of making convincing head fakes only to go right back from whence they came.  For instance, take a look at the chart below:

Here, we have a 4.5 Fannie back through August with a 40 day moving average in green.  Notice that it's the MA's predisposition to illicit a "bounce" regardless of the approach being from highs or lows, but that on a few occasions it simply passes right through.  It's at those times we perk up to assess whether or not that shift in trend constitutes a CONFIRMATION.  Only in the case of December do we see great evidence for that. 

Reason being, the trend acted as great SUPPORT in early december, and after prices broke through, the trend acted as RESISTANCE.  This pivot/inflection behavior, sometimes simplified with the analogy of "one man's floor is another man's ceiling," edified the argument that the trend in question actually means something in the first place.  In this case, it certainly did, but the point is that it's too soon to tell how long this shift in trend will stick around.  there are almost limitless ways we can hold it up to the fire in the coming days and weeks, but ultimately, all we can ever do is be "less uncertain" about where prices and yields will operate and what levels will prove significant for them. 

For today, and indeed for this week, go ahead and peel off one small layer of uncertainty.  Bonds officially made it back to the outer limits of 2009 ranges and proved they could stay there for a day.  And the same trading session saw stocks move back into their 2009 range outer limits for an entire day.  Congratulations.  We re-claimed the hill.  Thing is, now we have to see how long we can defend it.