In and of themselves, today's gains are quite good, with the 4.5 currently up 18 ticks to 99-12. This in fact puts us above Pre- NFP levels including most of Thursday's trading range... Very cool indeed... Not only is this evident when we zoom out to the 4 day view, but we also see that this is a linear extension of Friday afternoon's rally. Additionally, we can see tsy's make their move lower in yield this AM even as stocks ticked up a few from the open to start the day. Brief corrections and sideways movements in stocks have done little to deflect tsy's from their course, which shows a disconnection from the stock lever in our favor. All that said, there are a few very important reasons not to get too excited...
We're putting up a few extra days on the charts to show you a few important things... First of all, we can notice tsy's encountering resistance as they start to dig in to their trading range from thursday, and it's the same for MBS. Thursday's high at 99-12 indeed have not been broken yet. More importantly, regarding the break below 99-00 in 4.5's, although this is a strong failure purely in terms of the PRICE-BASED counterattack, it is not strong in terms of volume. To say flows are paltry today would be an understatement.
Whether one examines trends from a technical or fundamental perspective, everyone likes volume when it comes time to confirm or reject a recent trend. Since we have no volume, all of a sudden, the return to Thursday's ranges looks more like that which we've seen frequently of late: day trading ahead of more data. In this case, eyes (and $$) are said to be more focused on Bernanke and gang on Wednesday as well as the results of this week's tsy auctions.
Actual changes to the fed funds rate are not in question, but as always, the crowd gets silent and anticipatory when things like the FOMC announcement happen as clues about the future of interest rates might be divulged. Then again, they might not... If the reaction to FOMC is underwhelming, it puts more of the honus back on refunding results to let us know what's going on with rates.
Until one, the other, or both, I would take the current rally with a grain of salt and remain defensively prepared for anything.
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