What's the "zone" you ask? Rather than bore you with the paragraph upon paragraph of the written text I know you're so fond of, we're going to go a bit chart heavy tonight. Ok, so there's a chance that some of the time devoted to text was redirected toward making one of the charts "look cool." Whatever the case, think of it like showing up to 8th grade earth science and getting that surpise video instead of the text book. Well, there will be some text, but I'll try to restrain myself. Back to the "zone."
There are several zones actually. Early this afternoon a trend channel began assuming one factored out some of the peakier noises. Not only did it pervade into the afternoon, but "mini zones" (in red) of even more aggressive upswings were seen whereas similar downtrends never took shape. In short, the momentum of the uptrend was more bullish than many expected.
Speaking for MBS, the Temptations were on hand asking: "What could make me feel this way?"
Turns out one of MBS's "girls" would be treasuries:
A keen eye might tell you we tested yesterday's high early on and just fell from there (in yield). In technical terms, this persistent downtrend "flagged" two times for more than 30 minutes, and each time led to further declines in yield. In technical analysis the offshoot of mini trend channel that moves horizontally or counter to the existing trend is a "flag" and typically indicates continuance of the previous trend. Think of it as "consolidation" if you want. Whatever the case, to depart from the King's English for the official MBS Blog reaction to this aggressive downtrend in tsy's: dat real good right dare! 3.66?! Dat reeeeel good.
And now to mix the sparkles with the sunshine, we see more positivity in a chart of spreads. First of all, we're not overbought at the moment which is a good place to be going into tomorrow. In fact on today's chart, the red trendline shows we went out right around a "bout time to buy" spread level, assuming of course, that tightening trend that started forming this afternoon means something. Second, spreads have recently demonstrated some highly correlative behavior to impending price movments which affords our crystal balls a bit more predictive clarity.
And now for the reason I'm sure you all got out of bed this AM. The latest in a series of "what the hell is MG smoking?" head-scratching MBS price level analogies. Ladies and Gents, I bring you:
The Desert!
Long ago, it was foretold of a time when mere MBS would ascend to enjoy a bountiful life of high yields in "the clouds" after being visited by what my texts only describe as "the Great Ben." Until then, MBS had been punished for their transgressions in relation to a dark time called "The Meltdown." They were relegated to a trading range with the noble 5.0 coupon never rising meaningfully above 101. These were the olden times of MBS in the Ancient Underworld. But when The Great Ben spoke his prophecy (sometimes referred to as The MBS Purchase Program), he laid one challenge out in front of MBS. They would have to cross a scorching desert. Ben didn't really know if this would be all that difficult, but in retrospect, the Desert stands out as something that MBS avoid crossing if at all possible. If they do find themselves toe to toe with the borders of the desert sand, they have most frequently turned away immediately, if not days in advance. For nigh on 5 months, the 5.0 coupon set nary a foot in the desert. But he knew that the time might be upon him when he was pushed back into the desert by dark forces set into motion by the 3 evil wizards: GrossBill The Impugner of Domestic Credit, Bull Lemming The Myopic Warrior Of Recovery, and the third known only as Inflator! (the exclamation point is actually part of his name! I know! Right?)...
He thought back to the before-time when he had first come to the desert (#1 on the chart). After crossing quickly so as to not burn his feet, his detractors tried to pull him back TWICE (#3) before he reached the pinnacle of the clouds. Seen as he was to be unable to sustain such an altitude, he began to fall towards the underworld again, but upon reaching the Desert (#4), he fought back (#5). With more stable upward momentum this time, he enjoyed the most extended period of high-altitude prosperity he'd ever known. And then the 3 wizards arrived and their power was great indeed. They were able to force him into the desert for only the second time ever. So again he dashed across. But standing on the brink of the underworld (#2) , his strength was renewed, and he fought back to the base of the clouds. The wizards didn't allow him far into the clouds this time and despite avoiding the desert on their first counterattack (#6), weeks of viscious fighting ensued (some call this time simply "June") before he was forced through the desert again. This time he journeyed DEEP to the long forgotten depths of the Ancient MBS Underworld to face his demons! The theme from rocky played and there was much rejoicing as he emerged from whence he came to cross the desert again just as fast as he ever had.
And as of today, my friends, the Illustrious 5.0 stands yet again at the very base of the clouds.
(all that to say, that the yellow line we hit yesterday was cool, but wouldn't be as meaninful as getting to the red line. This doesn't mean we're out of the woods yet--or desert rather, but simply in positiion for the first time in June to operate in our previously awesome range. If we can hold above the red line for a few gyrations, well, let's just say you'll ALL feel like making out-of-left-field analogies about the financial markets).