This morning kicked off with everyone's favorite equities analyst Meredith Whitney out with some bullish comments on earnings. This set a positive tone for stocks for the rest of the day. Seeing as how further stock losses are one of the components of confirmation on which fixed income is waiting, this necessarily set a negative tone in fixed income markets with 4.5's losing 12 ticks b y the end of the day and the 10yr tsy down 17 ticks, bringing the yield to 3.358. Tsy's got particularly hammered as the 3pm closing mark approached. The relentless ceiling-busting show put on by the SandP late and the day was akin to a text book demonstration on "how to kick someone when they're down" with fixed income being the unwilling volunteer today playing the role of "the kicked." You can see in the chart below how tsy's initially dismissed equities forays higher in price as something that would probably return to earth. But as it became more and more apparent that the gains were real, tsy and MBS prices went the way of the text message junkie on Manhole AVE, ultimately catalyzed by record government borrowing reported in today's Treasury Statement ($94.3bln deficit).
Perhaps a bit of silver lining... Aside from the losses, it was a fairly underwhelming session in MBS with no direct response to any data of consequence in addition to a mere 2/3rds of average recent volume. Did someone say "summer?" On the flow side of the equation, some participants are noting that recent price levels have given way to moderate profit taking today after being deemed a tad rich. Also mitigating forward looking certainties would be the long term chart's arrival at one of those crossroads points marked by 100-07 to 100-09 range in 4.5's, this being the lowest price point for the bulk of 2009 and a noticeable ceiling as the initial December rally was underway. We're forming a triangle (or hopefully "penant") whose lower line would put the bottom of our potential trading range squarely at those levels. So in that sense, we lost "just as much as we could have without violating the lower line of that triangle" thus allowing hope to remain for some further upside without first enduring a more substantial correction.
But don't put too much stock in those techs at the moment... With today being relatively data-free, and with the rest of the week packing some respectable scheduled-data punch, it will fall more to yet-to-be-determined fundamentals to suggest immediate price movement. In addition to the calendar, the fact that the SandP rose above the "neckline" of it's recent "head and shoulders" formation will likely cause a higher degree of interest and important to be placed on data that drive equities markets. For the rest of the week, it really may be as simple as the old school tried to teach you: stocks up, bonds down... And vice versa... With that said, retail sales may be an early indication of equities predisposition on the day. In addition, no strangers to the scheduled data spotlight, PPI and Business inventories are out at 830 and 10AM respectively.
Remember that extent to which we should be watching economic indicator data is much higher now than it was before the most recent FOMC meeting and even some of the technical levels that surrounded it. With stocks nowhere near their uber-high 940's levels in the SandP and tsy's exhibiting a similar aversion to their 4.0% (ish) levels, everyone's waiting for guidance. And though it may not be enough to start an Indiana Jones sized boulder of market momentum in motion, this week's data in conjunction with earning's season festivities may be enough to at least give it a little push. No clear indications for AM, so GUTFLOP accordingly. If we break current support on the downside, could be another red day. Conversely, if stocks get a cold shower from retail sales, etc..., we could catch the bid that was noticeably absent today. Stay tuned...