It was a handsome recovery by the end of the day as MBS stayed within a trend channel that emerged just before the book close at 3pm.  The picture tells the story better than the words, so here you go: 

This 99-25 level is 6 ticks ABOVE the constantly revisited line that signifies our extra-firm long term price floor.  At this point we've superceded the previous "high times" from December and January by several days and are thus "pushing our luck" from a technical perspective.  But as we discussed previously, this go round on the rally wagon seems to be hitting technical levels much more slowly than the first go round.  Case in point on the chart below, notice the rally in mid-December and how after falling from the initial run up, prices again rallied, but not quite as high as the intial run-up.  This "μ" type shaped curve is a classic sign of a 23% retracement.  Again, the same 23% retracement occured on the March initial run-up, but as you can see, the time frame for getting back to that 23% level was much more "stretched out."  So it is a possibility that this up cycle may last longer, but unfortunately we won't know that until we have the benefit of hindsight.  Here's how it looks when put into a chart:

So from a longer term point of view, we find ourselves once again, just on one side of a very serious momentum-shift indicator, waiting to find out where the ball will drop in the week to come.  If it seems like a common theme recently,  direct your attention to the previous 3 dips on the chart above.  Each time we've approached and bounced off this key trendline.  It should also be noted that on those "bounce" days, all three times, we did, in fact break the line on an intraday basis, just like we did today.  But by the time closing prices were in (today included), we ended just above.  And so it's the same song and dance for the week upcoming.

One difference this week will be that it is not only packed with data, but also the traditionally supportive week for MBS with refundings, NFP, and Class A settlement.  This, in and of itself, won't be enough to keep MBS positive should we be subject to the same "innocent bystander" crossfire we were today, in the form of massive treasury selling.  But should treasuries catch what some view as a technical price movement "hail mary" next week and merely hold steady, we will hold steady as well, and perhaps do even better. There are plenty of arguments on both sides of that coin, but on a cautionary note, spreads, which have been tightening and tightening recently, MAY need to undergo a bit of corrective widening.  And if they do so in any environment other than a treasury rally, it's through the line we go to see if our technical analysis adventure plays out the same way at lower price levels.

Just as we've said at similar points in the recent past, however, this is all at relatively moot point as this line is a fantastic "lock-0-meter" for the time being.  Unless we get too far above it, it's an excellent "trip wire" to shift our bias towards locking.