It was a 10 tick trading range today that was fairly lacklust and began leaking out into the early afternoon when the only sizeable headline event hit the wire.  The Fed, in their recently adopted fashion, wasted no time in announcing an inception to their treasury purchase plan, you know, the one where they're going to buy $300 bln of treasury paper?  Since we spend so much time arguing that treasury rates and mortgage rates do not vary directly, why all the hubbub?  Our spread devotees will already know this, but basically, a better treasury rate gives MBS a lower basis upon which to operate as a "spread product."  In simpler terms, if treasuries are the risk free alternative to MBS's moderately risky fixed income investment, the lower the price of the alternative, the lower the price of MBS can go and still be within its normal operating range, aka SPREAD.  In fact, this was a major component of last wednesday's rally.  An oversimplified conclusion would be that the Fed announced $750 bln MBS purchasing, but in actuality, even though only $300 bln, it was probably more significant that the Fed announced tsy buying.  Reason...  Concerns have been raised that stimulus efforts will continue to put such a massive amount of tsy supply into the market that tsy rates will rise too much for MBS to stay low.  Going back to the econ 101 from a few sentences ago: people would have no reason to stay in MBS if tsy rates rose so much that the cost of getting risk free money was much less than it is now.  (see: NARROW SPREADS)

At any rate (pun always intended), we've seen a similar battle plan from the Fed on our own near and dear MBS purchase program: an original announcement, followed by further details, followed by a timeline indicating when the purchases would actually begin, followed by day one of the purchases.  In the past, it was all so new that we got our biggest price benefits at the later stages of that process.  This is evident in the fact that MBS had its biggest rally when it when the buying timeline was announced in early january.  But markets are learning to take Benny and the Jets at their word much more readily than during more unprecented periods.  Ha!  At this point, multi-billion dollar initiatives are old-hat, and the fact that Ben will make good on the $300 bln letter of intent is all but a foregone conclusion.  So expect to see an inverse relationship this time between the time scales and rally fervor.  Simply put, the original announcement will most likely stand out as the biggest tsy rally related to this specific $300 bln, especially considering that it was able to catch some of the "euphoria bid."  Still...  Tsy's got some love today.  So how about including them with our intraday chart.  Here are 4.0 MBS and 10 yr tsy prices on the day:

or perhaps you prefer yield?

And I suppose you're also wondering what this has done to good old Day-Over-Day Candle chart with the pretty colors we've been checking out for the past few sessions?

As you can see, we've fallen right back into the center of the uptrend.  The next major signal we'd look for would be for the bottom end of this channel to stave off any attack by sellers.  All that in time.  But back to two other more subtle considerations in the chart.  First of all, the candles...  I noticed something today when looking at yesterday's shooting star (inverted hammer) versus today's "spinning top."  I'm no candlestick master, but I've studied them enough to remember the names and formations when I see them and then to crack open my candlestick bible to consult.  Basically, the inverted hammer in this formation is usually a bullish reversal signal, but more importantly, since today wasn't necessarily bullish given the weak open, the "spinning top," which is the rightmost candle, CAN BE a reversal signal if occurring after several days of a downtrend.  The hammer yesterday and the spinning top today, from a candlestick/technical perspective would indicate that the sellers are meeting resistance as they near these levels and for two days have been unable to push appreciably lower.  Things may stagnate sideways, or they may be poised to reverse according to this school of thought.  To whatever extent it holds water will remain for us to see in the coming days, but it's just something to give you a modicum of hope, IF you ascribe to any of this voodoo witchcraft that is.  We could also talk about the textbook example of the "bull flag" that we got today, but friends know when to say when.  So let's turn to something a bit more mainstream and palatable.

Just from a general perspective, take a look at this chart as a GENERAL uptrend which has followed a GENERAL downtrend.  I'll put the downtrend in teal lines.

These waves are a moderately bankable indicator.  They've been emerging with reasonable regularity in MBS in recent months. There is a lot more to this discussion that we won't get into here, and by no means is this proof of a continuing rally after this selling, but again, one of the possibilities for you to consider alongside the other data informing your conclusions.  What's mine?  It is a distinct possibility that we will stay in this channel, but the uncertain question is HOW LONG.  The "waves" do not have a definite time frame, so it could be only a few more days, or even well into April.  Whatever the case, the chance of a reversal in this uptrend is much more of a concern if we break the very very solid floor developed in early march.  Fingers are tired from charts and techs.  A quick look ahead and we'll wrap up.

Tomorrow will be the day where we see if today's "spinning top" is indeed a reversal sign.  For only a few scheduled releases, we have a reasonable amount to digest:

• At 1220. Cleveland Fed Pianalto (no vote)
• At 1pm San Fran Fed Yellen (voter)
• Durable Goods Come in at 830 expected to show some improvement
• New Home Sales at 10AM
• MBA purchase applications at 7AM
• But perhaps the biggest item of the day a 5yr treasury auction at 1pm.  Will discuss the upcoming auction in tomorrow's mid day post and of course, be right with you as the results unfold.