Some moderately coherent ramblings from last night's recap on MBS Live to set up today's:

"What is clear is that whatever writing was seen on the wall appears to have instructed bond markets and MBS to retrace to their best recent 3pm levels from earlier in the month (both Fannie 3.5's and 10's essentially hit 11/9's closing marks) and promptly bounce in the other direction. This "around 1.95%" business in 10yr yields is basically "it." So on an effectively data-less Friday ahead of a 3 day week, we wonder what it would take to get the bond market long enough to eke out further gains in MBS. Probably some overnight drama out of Europe, but slightly more dramatic than average? At least that!" 

Not only did we not get the high-grade Euro-drama that would have been needed to keep MBS rallying this Friday, we actually got headlines that were mostly positive for the EU crisis.  The Euro itself is still up sharply from yesterday's 5pm levels and even put in a bit of a supportive bounce halfway through the New York session.  None of that has been good for a US Treasury market and MBS market that was already looking at slim chances of rallying today.  At least 10yr yields seem like they might hit the 3pm close underneath the technically supportive ceiling seen in the video clip below, hopefully allowing MBS to stay inside their range without falling past 101-19.

 
Even if prices of Fannie 3.5 MBS do fall past 101-19, there remains a longer term support floor around 101-16 which has served as an excellent last line of defense as far as locking/floating is concerned.  The few candlesticks that appear below the line are mostly 8am to 9am candles that have early AM lows that quickly rose above 101-16.

Apart from the relative European positivity, there's also this matter of today being Friday, data-free, and next week being a 3 trading-day week.  So we're seeing both stocks and bonds hesitant to overcommit at such a juncture as evidenced by the drift higher in yields and lower in stock prices seen in the chart below--this despite an ongoing, relatively stable stock lever connection.

Concerning the longer term "triangle" in S&P's, here's how that has evolved over the past two days.

Ultimately, we're significantly more concerned with bond markets than stocks, so let's take a look at a few possibilities in underlying benchmarks.  In fact, underlying benchmarks, such as 10yr yields have actually done a fairly good job of letting us know what's been going on.  To wit, note the red, grey, and teal sets of lines below.

A clear uptrend emerged after the bounces off the lowest lows (red lines).  It was already in-proccess, but the way it behaved around the two breakouts (we'd classify those as "snowball" events that broke and returned to the trend) shows that it was paying attention to the lower resistance line.  Then we see the teal lined downtrend emerge in early October to battle it out with the red-lined uptrend.   The uptrend held strong twice, and even broke the downtrend signicantly (later October), but after another bounce (breakout attempt even) at the scariest limits of the uptrend, things reversed dramatically, and the place where yields stopped was no accident, as they moved immediately to assess the previous downtrend (cluster of candles along the lower teal line in early Nov). 

Since then the downtrend has been duking it out with a neutral trend (represented by the grey lines).  There are good cases for both, but we still thing that breaking the lower grey line is going to be reliant on some significant European developments (economically negative ones).  Bottom line (no pun intented), if you're playing the range based on the 10yr benchmark, lines in the sand include 2.04 and 2.073 in the short term.  Longer term, there's a lot of noise around the 2.12 area before we'd be in a sideways range (not pictured above) between there and 2.25.