The order of the day since July 16th is "higher highs" and "higher lows."

As we discussed mid-summer has been a bottom for a majority of the past 10 years +. It seems, given currently wide spreads, waning headline risk (we hope), vanishing inflation fears, and clear technical indicators that you are checked out to take a nap on any given day that allows roughly 3 weeks between you and closing.

Sure, some of us are in the market for shorter periods and that's always a tough call. We should expect to see a brief period of reversal as the curve moves higher. If you chance upon commentary regarding the 200 day moving average being just overhead, which at 100-12, it truly is (and could be broken soon as we are at 101-10), don't pay it much attention. What?!? How could I say such a thing?!? Blasphemer! Heretic!

Let me explain. As you know, we like to take a balanced approach when it concerns the eternal debate of market technicals versus market fundamentals. If anything, for my particular analysis style, fundamentals seem to have more bearing, but synthesizing these "styles" is somewhat of an individual experience. Neither is better or worse, but I don't ascribe to the purist technical analysis doctrine that "price discounts everything," meaning that every past, present, and future fundamental aspect of the market is already "baked in" to the current price trend. Therefor, ipso, ergo, by simply looking at the price curve, the technician believes (perhaps accurately) the he or she can most accurately understand (if not outright predict) current and future market movements .

In this tumultuous market, technicals can surprise you, but that's aside the point for now. What is more pertinent is that we CROSS the 200 Day Moving Average almost like clockwork: down to the lows of the summer doldrums, then up to the highs in the winter. Many theorists have posited suggestions as to the cause ranging from higher serotonin levels among traders during the summer increasing risk tolerance thus pulling money out of bonds and into stocks, to a more realistic point of view that "business conditions" in general are more favorable in the summer (as long as heating oil doesn't go up to fifty billion dollars a barrel). Whatever the case, I thought I'd let the numbers do the talking, so I slaved for 20 minutes over a hot MBS curve and cooked ya up the graph below illustrating what I hope (and what you also must hope by now) is a cogent point.

As you can see, "1's" follow "2's" and "2's" follow "1's." History does not ALWAYS offer this regular of pattern, however it has happened this way more often than not all throughout the history of fixed income. There must be SOMETHING to it. And if you are TOO concerned with the 200 day moving average, historically, you'd have run the risk on getting a "false positive" as we approach this general time of year as the summer leaves shed their verdant hue, giving way to brilliant fall colors. Those colors MAY (it's an art not a science) be all the brighter and end up bringing you more "green" in the winter if you take time to understand that there are certain GENERAL times of the year where the 200 day moving average is not a brick ceiling, but merely a melting sheet of ice.

Whatever the case, and at any rate (pun intended as always), please remember that there is no such thing as a straight day over day price curve. From a technical AND fundamental standpoint, we've established, after today, a reasonably firm floor (think higher highs and lower lows starting back on 7/16) at exactly 101-00, a nice round, convenient number where lenders like Provident et. al. will cough up a modest amount of YSP on a 6.0 with a humanly achievable turn time unlike their 12-day teaser! What's that? Other MBS sites don't reference lender-specific info? Hmmm.... Getting back to the point, we'll have to take a "set-back" day or two, very likely, in the near future. Could be tomorrow, Thursday, Friday, or even as late as Monday. Most likely this week though. AS ALWAYS, if your outlook is SHORT TERM, TIME THE TOPS! Unless this economy begins a resolute march towards utter rescession, the impending down-tick might seem a little scary. I don't think it will be as prolonged as August's down-tick, but there's no way to know for sure. Best bet at the beginning of the down tick is to be prepared for at least 3 weeks. So again, short term: your time to lock may be nigh. The longer you have, it is with more certainty I can advise you that floating will pay off.

Whew.... Tons of content today! If you are one of the brave blog devotees that has made it this far down and is thirsty for more, I want to provide it to you, but don't type the epic poem here and possibly crash the internet with "letter overload." So, similarly to the previous "conference call" with accompanying web meeting, we will do one specifically for these overarching trends, etc... Until the maximum participant level is reached in my gotomeeting account, but more on the way!

Rest your eyes my friends, and stay tuned....