Wednesday 11/5 ... Not Much To Report
An INCREDIBLY Flat day after getting to the highs. We haven't even come close to flirting with any danger zones or retracement levels.
Today presents our first real opportunity to lock in some gains in this environment. The suggestion for this is purely from a technical perspective as our implied price ceiling coincides EXACTLY with the long term triangle we've been tracking for several weeks. Technical indicators imply we will not break out.
However, as we are fond of mentioning, techs are out the window these days. Still, long term triangles tend to prove more reliable than other black magic. it also coincides with a break above all moving averages yesterday and today. Still, other technical charts, do not offer the same suggestion.
From a fundamental standpoint we've come off historical wides in spread vs. tsy's and are advancing arm in arm with swap spreads. As the ambient temp picks up, the original ice princess, credit, continues to thaw. Should it take a day off in preparation for a ridiculously significant Friday, short termers might be risking a give back tomorrow.
If you have a bit of risk tolerance, you might still float into tomorrow as a sustained price level would provide confirmation on more than half of the technical indicators we follow. It would also bode well for the fundamental backdrop if we merely "consolidate" tomorrow as opposed to get victimized by profit-taking and range-trading.
But the dark horse is Friday! This is the first Friday after a new president 8 years in the coming. It is Non-Farm Payroll Day. It is the beginning of Class A Net-Out (48 hour roll clock starts ticking monday). It is the last day of a week that started with the widest spreads of all time. It is yet another day forward eagerly awaiting info on TARP. It is another day between us and "utter crisis" (spikey vix, 6% libor, everyone hates MBS, world was gonna end). Basically, anything can happen.
At times like these, think of your pipeline as trading positions. If you came from last week, you are 2 points up! That's money in the bank. If you're fortunate enough to have a big enough pipeline to hedge, you might float some and lock some on the chance that month end and Friday proves to be supportive. It's tough to stomach, but look at locking tonight as MAKING money versus last week as opposed to LOSING money on potential further gains. The technical and fundamental risk of retracing rapid gains is great enough that locking should be considered for short term and even medium term deals. If things improve, it doesn't mean you necessarily "miss out" on gains, but rather that you have captured gains from last week and have obviated risk of loss for the coming weeks. It's a cruel game, but that's how it's played...
To conclude, there's a distinct possibility the positive momentum will continue, but the possibility of loss today is much larger than it was 2 days ago. 2 days ago we were coming off a triple bottom. Now we've touched the top side of our upside trendline. Fundamentally, the ninja and I are still long on the MBS owing to further inverted price action as the "ice princess" continues to melt under our charismatic gaze, but our technical analyst friends would laugh at us if they saw the price vs. trendlines today and we hadn't locked at least something. Divide and Conquer.