Everything must be taken with a grain of salt due to this being the first day back after an extended weekend and the fact that many overseas markets had no monday, but the first day of the battle we've been anticipating with this weekend's post  seems to be off to a good start.  Unfortunately, the "good" side of this battle tells us much less than if we had dipped below the fabled line of woe in 4.0's (somewhere between 99-20 and 99-23).  This, of course, due to the fact that technical price levels are more significant AFTER they're violated, so since we have not violated, we're still in that "waiting" mode.  Any day that we operate in a range close to that deadly bodkin is another day we wait with bated breath for the unhappy circumstance of a mortal blow.  But today, at least, we live on, suggesting our MBS groundhog THINKS he sees his shadow, and may well head back up that MBS hill for a few more weeks (or is that days) of sunshine.

How does this look graphically, you might ask?

That is what the chart would like like if we closed today at our current levels.  You can see that we'd be up a reasonable distance above danger, but keep in mind, that 6-9 tick margin is the sort of thing that can be lost, literally, in a NY Minute. But enough cautionary meanderings.  The moral of the story is that we have sallied forth and as yet, have avoided this enemy quite well.  Until we go below those levels from a day over day perspective, a "general float" should continue to pay off as it did this AM.  There is a bit of overhead resistance at PAR for 4.0's, but if buyers continue to readily soak up a modest supply, that PAR level can easily become another layer of support underfoot as opposed to a ceiling overhead.  The key there will be to get some bid-side participation OTHER than the Fed and Real Money (banks, etc...).  This would come in the form of fast money (hedge fund types), money managers, and potentially a smattering of overseas support (though as we've discussed, Asia is wont to stick to Ginnies).  Whatever the case, there is always resistance approaching PAR as a ceiling as certain banks face a mandate that prevents them from holding MBS with a premium (anything over PAR).  But historically, when we see that overcome, rallies tend to have somewhat more limber legs.  As far as that goes, all we can do is watch and wait and be cognizant of the potential selling signs.

So far today?  Not so many of those as the intraday chart tells the story:

You can see that despite a quintessential triple bottom in stocks (red) followed by a modest but potentially fizzling rally, that both MBS and treasuries are playing it cool.  Too, you can notice that the ever-so-slight rise in tsy yields since 11AM did not coincide with MBS falling below its mid-day imaginary ledge (notice the implied flat line under the price curve staeting just after 11?).  All good things, and a few more before getting to the caution.

Supply is light.  Analysts at CSFB think supply will come in around $120 bln this month versus last month at $178 bln.  Given the stable bid-side charge led by the Fed, this somewhat lessening (but still healthy) supply should generally make floors stronger than ceilings--that's assuming lenders don't go nuts with rate sheets and incite a slew of new locks thereby increasing the supply.

As far as caution goes, we are a bit light on volume today, which, as you know, can exagerate price movements.  Analysts also note that tsy's are approaching some upside resistance and some advise selling at these levels.  A treasury sell off would lead to tightening for MBS, but some potential price weakness as well.  Of more immediate concern, stocks have spike up rather dramatically since typing began (potentially on breaking news that US telecom companies can now apply for TV and Cell-Phone licenses in Cuba), and MBS and Tsy's may be under a bit of pressure to sell.  We'll leave you with that in order to monitor developments over the next few minutes and report back if this potential cause for concern materializes.  More likely, markets wake up and realize that no one cares, stocks will calm down a bit, and MBS  may escape unscathed.