It is no secret that the most widely discussed topic of the week was: The Range Trade

Our analysis relied upon the random price action of intraday momentum led drifts back and forth between high volume marks and technical pivot points.  Occasionally, knee jerk price spikes led to a little ALERT drama, but for the most part...we know nothing new about the direction the market's BIG PICTURE bias is taking us.

Economic data was taken well by some while others let their bearish side get the better of them. While the majority of earnings reports beat expectations, the downgrade of one BIG  bank caused mid-week commotion in equities (WELLS). The Federal Reserve continued to test the waters of their eventually exit from the capital markets, starting with the exploration of a reverse repo program on Monday, ending with Bernanke TV time on Friday....with a little voter/non-voter Fed president rhetoric and a darker shade of Beige Book sandwiched in between too.

All charts this week do their part to tell the story of the range trade, but with different respective subtleties.

Monday was a linear extension of Friday’s rally across the fixed income sector. But whereas TSY’s  encountered more of a horizontal overhead resistance, MBS’ highs were lower and lower with each pass on Tuesday. Perhaps the most interesting thing to note on this topic is that the downtrend (lower highs) line held true to quintessential triangle school of thought and provided resistance by week’s end. This is one of the best visual representations of this phenomenon we’ve had in some time.

The above and below TSY yield charts are fairly simple. As a recent closing commentary noted, 3.40 (ish) is something like the “middle of the range” in TSY. In fact, 3.38 was the technical level that got the most noticeable attention. This doesn’t mean that it was visited more than other technical levels, but that when prices did bounce and occasionally break 3.38, they tended to do so in much less “crowded” way. In other words, we could have drawn the 3.41 line in this chart, but there would be a mess of price action around it. Good old 3.38 was steadfast and unwavering. When crossed, trends shifted. When bearish, all it took was one bounce for the bearish trend to continue.

There’s almost too much going on with TSY futures charts to even broach the subject, but fortunately there are a few notables that will allow a quick look.

First there's 118-05: this week’s technical MVP. In a way, this is due to the same reasons that apply to the 3.38  level in cash market TSY ’s discussed above. The only other contender for pivot point of the week was the lower lower lower limit of the “range within a range” that orbited the 117-26 level on an intraday basis. Long story short, this level held up every day of the last two weeks before breaking this morning. After breaking, it did the standard issue “one man’s floor is another man’s ceiling,” and acted as resistance throughout the rest of the day. Does that mean something going into next week? Maybe.

Besides the early holiday greeting, the below S&P chart doesn't tell us much. Well there is one observation worth discussing...might some chart watchers start the “head and shoulders” debate again just as they did several months ago? Eh. We’ve learned not to follow the logical implications offered from the technical formations of the S&P, at least when the indication points towards a potential reversal. Funny though…the techs always seem to work if they suggest a continuing uptrend. Perhaps 1100 will finally break the spirits of the equity market. We’re not holding our breath... we're just patiently observing, waiting for it to happen on its own.

STORIES FROM THE WEEK THAT WAS....

Better Mortgage Origination: Financial Planning and Home Ownership Go Hand in Hand. READ MORE 
Freddie Mac's Portfolio Grows. Delinquency Rate Continues to Rise. READ MORE
Existing Homes Sales Benefit from Tax Credit. Perspective on Road Ahead. READ MORE
Consumer Protection Act Passes Committee Vote. HVCC Amendment Added. READ MORE
Fed Averages $3.62 Billion Agency MBS Purchases Per Day Last Week. READ MORE
Jobless Claims Led Higher by Layoffs in Manufacturing and Construction READ MORE
Fed's Beige Book: 'Stabilization at Depressed Levels'. READ MORE
State of Housing: Tax Credit Must Be Extended to Sustain Stability. READ MORE
MBA: Refinance Loan Applications Fall 16.8%. Purchase Apps Decline 7.6%. READ MORE
Single Family Housing Starts Increase in September. Building Permits Decline. READ MORE
Treasury, HUD Announce Program to Aid State Housing Finance. READ MORE

ROB CHRISMAN DISCUSSED THE FOLLOWING TOPICS ON PIPELINE PRESS THIS WEEK:

  • Condo Regs Delayed;
  • Fed's View of the Economy;
  • Bank Earnings;
  • Thoughts on 2010 vs. 2009;
  • HVCC Phase out?
  • BB&T's Warehouse Lending Commitment;
  • SunTrust Earnings;
  • Fed still buying MBS's;
  • Lend America;
  • HUD Issues;
  • Fannie's PRP;
  • Wells, USB, Jeffries, Morgan Stanley. GMAC;
  • Reverse Mortgages;
  • FTHB Tax Credit Extension;
  • Commercial Sector;
  • JD Powers Ranks Mortgage Servicers;
  • YSP
  • FHA

If you are mortgage professional and are not reading Rob's blog...BOO HISS on you. You are missing out. Plus he makes you laugh.

All in all, after all was said and done, the same uncertainties remain: everyone is still wondering how high stocks will go, the dollar's weakness is the end of the world, bonds are trading well regardless of related markets, and the Fed continues to  fill the role of EMERGENCY BANKER on Wall Street....for an "extended period of time".

THE FOCUS NEXT WEEK: TREASURY SUPPLY. WILL THE RANGE HOLD????

PLAY THE RANGE UNTIL THE RANGE PLAYS YOU

Enjoy your weekends everyone.

AQ and MG

(team effort on this post)