Although the give and take wasn't quite as drastic as yesterday's, once again we saw prices travel in a confined range with an almost symmetrical pattern. Once again we had economic data that could be interpreted either way and a stock market that did not make a decided move in one direction or another. "Waiting for Guidance," "Range-Bound," etc... Call it what you will it was a mostly uneventful end to a mostly uneventful day, with perhaps the most interesting thing for MBS being the Fed's weekly report on MBS purchases.
3 and a half hours ago we said: "Trading has been range-bound in 4.5's between 99-12 and 99-03 with the later emerging as the today's clear choice for a support level..." You can see ont the chart above this was indeed the case, but as we occasionally must remind you (and much to our dismay), the good call wasn't due to clairvoyance. Rather, this has simply been the trend of late: insufficient data, events, or news to break trends keeps prices range-bound as guidance draws closer. Hmmm... Maybe the closer the guidance gets without incident, the less prices tend to deviate even within the range. It's almost as if our most important report of the week is coming out tomorrow and the previous two sessions offered up a laughable paucity of movement inspiring market meat. (yeah, I said it... I'm bored...) It's almost as if over the past two sessions ranges were established by noon and held firm the next five hours... Oh yeah, it IS that way!
This has all been operating inside the bigger picture range-bind between 99 and 101. To wit, the following chart...
We're now clearly through the long term uptrend, BUT it's not uncommon for these preliminary breakouts to end up looking like an outlier in the long run. That's why I said not to read too much into a potential confirmation today as it would be a bit premature to consider the trend broken until we see if NFP kicks us while we're down or offers some relief. Even though we left the yellow line on the chart, perhaps the more important level is 99 (ish). We're near to 99 in the short term range as well as the long term range.
It's as if all the willing buyers helping to keep prices on the high side of the range have been washed out. This leaves us resting either on the cusp of the next leg down--for indeed there isn't really any support underfoot from here--or poised for reinvigoration for continued tango on that old 2 point wide dance floor. In other words, tomorrow and next week are potential inflection points and the stock market seems to agree (first two day losing streak in the S&P since the 27th of July and also the biggest retracement in prices since July 13th!!!).
Stances remain... Unless you're betting on a sizeable poke below 99-00 tomorrow, I wouldn't let the 5 tick loss today deter otherwise committed intentions of floating. That said, my hedge ratio would be a little more robust than the bottom of a trading range would normally warrant simply due to my perhaps-overdeveloped fear of the dreaded bull-lemming, who is intent on overbuying stock indeces to record exhaustion metrics. So with stocks exhausted (we distinctly hope) from a positive run and MBS exhausted from a negative run (stock lever anyone?), we fall across the finish line at the same time (figuratively) and are now awaiting results of the photo finish. First glimpse tomorrow. Payrolls are forecast to get drastically "less bad" with a headline of 300-325k depending on which median you go with. Unemployment however, is not expected to improve, moving up a tenth to 9.6%
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