Thursday 9/4 - Bask in the glow...

Folks, we are on a tear.

As we discussed yesterday, in the near future there is a possibility for a downtick as we continue our gradual upward trend of higher highs and higher lows, but iut appears that day will not be today.

Today is a day of glory and victory for all you members of the float club, for all you MBS soldiers that kept the fires of hope (or financial common sense?) or trust in your fearless MBS commentator alive during the downticks of several weeks ago, saying to yourselves "man, I hope this guy is right!"

Whether it was skill or luck, here we are! Over the 200 day moving average... Riding on the high side of the 8 day moving average... Moving upwards in the predictable confines of a trend channel. Techs are holding true... Fundamentals are holding true... For once in this tumultous period of time, things seem (at least for now) to be going our way. (Again, though glory is now, it's uncommon for such a positive trend to shoot straight upward without retracing back to previous plateaus of support, so we'd expect to see some retracement occur, but barring headline risk, event risk, or economic recovery (p'shaw!), we should retrace for the POSITIVE within 1-3 weeks or so. Even then, we are at such a catalytic turning point both in terms of standard operating procedure for historical trends BUT ALSO in terms of the entire lifespan of event risk for Fannie/Freddie/Ginnie/Housing data tracking, that if there were a time for techs to buck the retracement trends, it might be now).

Here's a 2 day intraday graph of the price action in the 5.5 MBS coupon. Yes, my friends, we've moved to the 5.5, so don't "freak out" when you see that prices are significantly lower than the 6.0. Moving to a 5.5 is a good thing as it indicates that your author has been informed by the MBS Ninja et. al. at the current majority of trading volume and UIC (up in coupon) vs. "down in coupon" (we don't abbreviate that one!) momentum, favors the 5.5 as the most liquid (highest volume of trades occurring) coupon at the moment.

At any rate, on the graph below, you will see a faint gray line, 2 of them actually forming a trend channel for the past 2 days. As always a break out of the channel to the high side is a good thing and to the low side, either a sideways thing or a bad thing (generally, but there are exceptions).

In addition, I have overlaid the 200 day moving average. I would have thrown an 8, 21, and 40 in there for you, but with the scale factor of the graph below, they ACTUALLY WOULD NOT HAVE BEEN HIGH ENOUGH! (meaning we're so far above those MA's, they wouldn't have shown up on our graph). We discussed the significance of a 200 day MA cross yesterday and that it seems to happen with startling regularity about this time of year, and then once again about 6 months from now. This cross, of course, is the positive kind, and although we can be nearly certain that rates will improve into the winter, it would be a boost in confidence to a technical read of the data to get "confirmation," which, in a nutshell would be a maintaining of today's price levels through tomorrow. If that occurs, well, I don't know what to say, other than "break out the bubbly."

Another line that shows up on the graph is a new one for us. Don't pay it much attention unless you have in the past, or want, in the future to become a student of technical analysis. Basically, it is the upside channel line of Bollinger Bands. Pretty simple really.... Bbands (as some call them, or even more simply if you'd be so kind to remember this: BB's) are two MOVING AVERAGE lines, one on the high side one on the low side. They ARE NOT moving averages of the price action itself, but rather a derivation of it. That from which they are derived is, itself, a simple moving average. This creates the middle line in BB analysis. You won't see that here today, but google it, and you should pick it up pretty quick. Ugly and intimidating stuff, but not too bad. Once you understand that the middle line is a simple moving average of MBS prices, then it's easier to understand what the high and low lines are. Very very simply, they are TWO standard deviations away from the simple price moving average, one on the high side, one on the low side.

The conventional units for all of these are normally a 20 day moving average for the middle line (I use 21 day MA as that's what the cap markets top techs are currently using) and TWO standard deviations (AKA 2SD). So you will see the yellow line on the graph above labeled as BB 21DMA/2SD. In other words, "Bollinger Band line factored using a 21 day simple moving average of the dollar price of a 5.5% fannie mae 30 year fixed TBA mortgage backed security for September delivery, and a standard deviation of 2." I figured the BB21DMA/2SD was shorter. Now you know.

Ok, enough typing for now, here ya go:

Really, any way you slice this it's positive. Stay tuned for reprice alerts, as you never know when profit takers are going to step in and drop a bomb on our beautiful little curve. However, to whatever extent traders or tradin' technical signals, a majority of techs in both MBS and UST's are bullish, and having crossed that 200 day moving average, some support should exist if we can get confirmation tomorrow. Whatever traders are doing, the general trend will hold despite temporary (2-3 week) retracements.

And so it is, brothers and sisters, that I leave you with the aforementioned graph as a standard to wear proudly into future battles. With unrelenting data, research, and communication on our side, we should be able to charge headlong, as we did in August, to many a more perilous struggle and rest easy that we can capitalize on benefit, and avert disaster. On a serious note, to those that have stayed in the float club, thanks for your support! We already got confirmation of the float club benefits last week, but the fact that they keep piling on is icing on the cake. Congrats on your decision to dig into MBS on a deeper level. Hopefully you're already reaping the rewards...