MBS AFTERNOON: Narrow And Stable Heading Into The Close

The market is duller than a Colts victory parade at the moment.

We're dealing with a fairly standard issue "calm before the storm" that we often see on a data-limited Monday when the rest of the week contains the more significant events.  The supportive trends we began to note in the last post have continued to foster a narrow range of prices with almost perfectly flat directional movement.  In other words, the simple existence of a "narrow range" doesn't always mean prices aren't moving.  We can see narrow ranges while still moving DIRECTIONALLY.  For instance, even on a 16 tick rally, if the subsequent highs and lows are only a tick or two higher than their previous marks, the line on the chart would be fairly smooth yet still be very much higher at the end of the day.

So when we talk about "narrow" and "directional," we're talking about two different qualities of the trading action--"narrow" referring to the distance between highs and lows (can be thought of as volatility as well), and "directional" referring to actual changes in price levels.  The farther away prices are from where they were, the more directional.  Make sense?

Bottom line, the days that are both narrow and that lack directionality are better than 4 fingers of single malt and a Morphine IV Drip if you're trying to catch some mid-day Z's, much less interesting Z's, but at least you can get up and go home fairly soon.

The rest of the week promises to be more and more interesting, but isn't really picking up steam until Wednesday's 10yr auction and Bernanke speaking on the winding down of various stimulus efforts.  Even so, tomorrow's 3yr auction shouldn't be dismissed as tier 2 data just yet.