MBS MIDDAY: Range Trade! Range Trade? Is There An Echo In Here?

Even though you'll likely be able to print AQ's last post to serve as the general game plan for the whole week (notwithstanding reprice alerts), we consider it our humble duty to let you know what's going on, even when it's "more of the same."

Though some of the upper and lower limits of today's range have been pecked at, today has largely been a story of two price levels serving as mild suggestions for the upper and lower limits.  What would that look like graphically you ask?

We derived one of these lines from today's trading action and the other from longer term trends.  Based on today's action, it's easy to see the teal line serving as support at about 100-04+.  The yellow line indicates an internal uptrend that was serving as support until just after the noon hour.  It seems likely that the teal line will hold as support today, so the story now turns to the battle between the yellow line representing the possibility of a breakout from our current range and the red line, representing the top of the recent range and with extreme gravity for any brave MBS venturing above it. 

So by now you've guessed, even if by process of elimination that the red line is the one derived from longer term data.  After this AM's uptrend fizzled, and we found horizontal support at the teal line, I wanted to find some horizontal resistance on the upside.  It was a true "coulda had a V8" moment when I took a look back at some previous analysis and compared it to today's intraday.  The red line falls at exactly the 38% retracement level that we've visited a few times in the past as being a tough ceiling roughly half way between the annual median and annual high range.  Why wouldn't that be at 50% you might ask?  Because the 100% level rests on the highest highs, of which there are very few.  If we were to place the 100% level at the most common highs, this 38% line would be around 50%.  If that confuses you, don't worry about it as retracements would require some more blog posts to explain.  (Incidentally, put something in the comments if you're interested in learning more about such things).

All the technical jargon aside, the red line is not only meaningful for today, but it has been consistently in the past.  To wit, the following chart:

Ha!  Check that out...  Touched many times in April, but only broken once.  If we can get over and stay over with the help of our yellow line, it would bode well for the rest of May.  The range trading pattern has obviously put a damper on that uptrend represented by the yellow line, but anything's possible if stocks and treasury yields continue to tank (Dow down around 200 pts at the moment).  Whatever the case, you're definitely floating at least through the end of the day, pausing there to reassess gains passed on by lenders.  If the range looks to persist, time to take some profits just as traders are doing.  But if we have a good breakout this afternoon, it may be a better risk to let it ride overnight, assuming, of course, a reasonable degree of stinginess among lenders.

Since 5pm "Going Out" Marks....

FN30________________________________

FN 4.0 -------->>>> +0-09   to 100-08  from 99-31

FN 4.5 -------->>>> +0-07   to 102-00  from 101-25

FN 5.0 -------->>>> +0-08   to 102-31  from 102-23

FN 5.5 -------->>>> +0-08   to 103-26  from 103-18

FN 6.0 -------->>>> +0-02   to 104-27  from 104-25

GN30________________________________ 

GN 4.0 -------->>>> +0-06  to 100-08  from 100-02

GN 4.5 -------->>>> +0-08  to 102-05  from 101-29

GN 5.0 -------->>>> +0-09  to 103-22  from 103-13

GN 5.5 -------->>>> +0-06  to 104-07  from 104-01

GN 6.0 -------->>>> +0-02  to 104-25  from 104-23