MBS Live Day Ahead: Still Waiting for a Break of the Holiday Consolidation

Not to be confused with the consolidative trend seen in Q4, 2017, there's been a slightly more negative consolidation underway in the last few weeks.  If it's not adequately implied by the verbiage, a consolidation refers to prices or yields getting closer together.  On a chart, this often takes the form of "lower highs" and "higher lows."  That said, it can also take the form of "ascending lows" and "less rapidly ascending highs," as is the case in bond markets currently.

You might look at the chart above and think that the upper line could, in fact, be drawn from the highs of December, and thus fill the role of the "lower highs" trendline discussed above.  That would technically be OK, but 9 out of 10 technicians agree that lines with more touches/bounces speak more to the trends that are intact.  In other words, since the mildly ascending upper line in the chart has more touches/bounces than the nearly invisible descending line, AND since that descending line has only 1 recent touch, the teal lines will likely tell us more about when trends are shifting.

All of the above means that relevant technical levels may be moving targets to some extent.  Still, it's notable that either of the upper line options have a range 2.47-2.52%.  That's a zone we've discussed as an important ceiling for a long time.

Whether you keep an eye on 2.47%-2.52%, or simply rely on me to update the moving (teal) lines, the point is that we're still waiting for the new, weaker consolidation trend to break in early 2018.  As we've been discussing for weeks on end, it's this 2nd week of January that holds the first real potential to see a new dose of momentum.  In addition to the timing consideration (it's traditionally the first week that market participation gets back to "normal"), there's also the presence of the most important economic report on the current radar: the Consumer Price Index this Friday.