Not like we didn't already have a lock alert out, but we thought it would be a good idea to show you a graph.

This is a 2 day intraday (thursday and today's price action in fannie 5.5's)

'tain't good....

However, even though we are down just over a quarter of a point on the day, perhaps you'd care to take a look at a more important trend from a purely technical perspective...

Here is a graph beginning from mid august, when we saw the lowest intraday prices of the year.

Now, we will overlay a trend channel that has been suggested by all the price action between then and last friday, which, traditionally should be predictive of this week's price action...

Given that we are tracking back over 30 days, that's a very solid base of support. A window of insight into the technician's brain for those of you not intimately familiar with technical analysis.... In general, the more times a price curve touches a trend line and fails to break through it, the more firmly that trend is established. This is basically tech 101. And although there are exceptions to this rule, especially with respect to our discussion about the 200 day moving average 2 weeks ago (which broke through the next day and hasn't looked back by the way!), there are ways to take into consideration the concomitant circumstances that lend credibility to your position. One of the most important pieces of support for this trend channel is not the channel itself, but rather, the fact that, on average, MBS historically would continue to move in an upward pattern through this time of year. (Because of course we could never assume that a trend channel will move indefinitely upward!)

The moral of the story is that this trend channel, considering the backdrop of historically wide spreads (yes, even considering recent tightening), moving into a historically supportive time of year, a market yet to digest the quality product of all of the rigor we've been enduring with GSE AUS's, a price correction that doesn't see wildly inflating values suddenly changing course, etc..., it stands to reason the lower line, at least, of this trend channel, SHOULD (it's a probability thang!) prove to be a reasonable technical support indicator. Understand that technical indicators don't guarantee future movement. Far more significant that assuming prices will keep moving up is the following: Once this firm trendline has enough support (which it does), it now becomes an indicator of a potential reveral if we were to cross the line on the downside and remain below it for a day or so (aka "confirmation). Ok, enough novella, just note that even after tonight's weakness, we are not yet near the lower line of support.

So, unless someone takes the whole "float club" theme a little too seriously and actually puts the world's largest financials out of their misery, some sort of closure should arise with respect to Lehman, Wamu, et. al... We didn't get it today, plus we had a late day stock rally, both of which are MBS negative. If we can snag this lower line of support and keep riding it, it will be YET ANOTHER reason to keep the mid term outlook "floaty."

Oh, and the last thing... take a look at this graph one more time:

notice that this marks the 4th week in a row where we've encountered weakness at the end of the week. So that, in and of itself suggests we take friday's with a grain of salt and have historically (at least in the recent past), been able to look forward to sunnier mondays.