When you see the word "technically" in this blog, it's safe to assume that it means "according to a strictly technical assessment of market movement--one that largely discounts fundamental data and relies primarily on outright trading levels (or simply "price"), trends, and in some cases, technical analysis."  When it comes to markets, there are several ways to think about why they move the way they move.  For the most part, these are divided into two main categories: fundamental and technical.

To reduce each category to its simplest form, we could say that a 100% fundamental trading motivation would have nothing to do with price.  For instance, if breaking news came out that pork bellies cured cancer, a commodities trader might decide to take out a long position on pork bellies.  Conversely, a 100% technical trading motivation would have nothing to do with that news and instead have honed in on one of any number conclusions strictly regarding the current price vs past price movement of pork bellies.  The technician might see a rapid rise in prices that breaks a previously significant ceiling and end up taking out a long position around the same time as the fundamentalist.

In practice, working purely off either extreme is not useful for most market watchers.  It's a fool's errand to put too much stock (no pun intended) in either school of thought when the other is making suggestions that historically have a higher probability to be accurate.  For instance, even the strict technician could read the pork belly news above and conclude it was a good time to buy without even needing to look at charts. 

There's more of a grey area coming the other way, however.  For instance, just because prices cross a certain trendline or moving average in such a way that provides a 'signal' for the technician, the fundamentalist who doesn't act on that technical signal won't necessarily be "wrong."  That's because most technical signals are able to be balanced out by several contrary signals at any given time such that it takes significant study, application, and practice to systematize conclusions.  It also means that the technician's own interpretation of what's important greatly informs the chance of success. 

All but the die-hard purists would agree that the ability to interpret significant technical events is inextricably linked to significant concurrent fundamental events.  When a certain sum of "technical + fundamental" significance is reached, trading considerations (or for the purposes of this blog, pipeline considerations) get more serious.  Keep in mind that such statements can only ever be made in terms of probability.  There really is never any way to know exactly how markets will trade in the future. 

In fact, the prediction business is tricky, and tends to be more useful with a binary approach for our purposes.  For example, if we can identify the technical levels or fundamental events that are likely to matter most and correctly match the "higher/lower" price implications to a given input from either school of thought, then we can be infinitely more prepared to advise our clients who may not be following markets as closely as we are.

With all that in mind, we're now facing a potential confluence of significant technical and fundamental data.  The fundamental piece won't be fully informed until next week at the earliest, and even an extreme mid-week scenario could be reversed by Friday's Jobs report.  The technical piece has been unfolding for weeks and concerns one of any number of inflection points in bond markets.  Of chief concern at the moment (and appearing on several recent charts) are the 2.46 level in 10yr yields and the 104-10 level in Fannie 4.0s.  Yesterday's charts showed how each was acting as the asymptote for two recent, high volume sell-off recoveries. 

Today's chart, then, fills in the rest of the story as to why 2.46 is "technically ominous."  Keep in mind that the lower chart's rightmost point is Wednesday's closing yield and if we end up below 2.46 next Wednesday, then the line will never have crossed the gap moving up.  In other words, that chart is how the monthly closing prices would have looked if Wednesday was the last day of the month.

It would take some doing for any remaining month in 2013 to close under 2.46 if July doesn't.

Today brings weekly Jobless Claims and Durable Goods in the 8:30am time slot--both moderately important reports and either capable of moving markets if far enough from consensus.  The afternoon brings the last of the week's Treasury auctions in the form of 7yr Notes.  These aren't the most popular in terms of volume or liquidity, but the simple feat of getting through the week's (and month's) auction supply could be (and has been in the past) worth at least something in terms of a post-auction "relief" bid.  Sometimes that's noticeable and other times, it merely counteracts forces that would otherwise take yields higher, leaving the appearance that it had no impact.