Another uninspiring and underwhelming day where after the customary bit of "chop-chop" (as in choppy price movements?) gives way to a fairly predictable range trade through the close. Well, at least this stuff is predictable in hindsight right? I mean, why did we even bother doing anything that could be considered analysis this AM right? Wouldn't it be easier to simply say, "oh, we're at 100-12? Plan on a range-bound moderation toward par by day's end, with unimportant choppiness in between..."
On the above chart, the lines are fairly arbitrary, just showing you the broader trend in red and the tight range where 80% of trades took place today in yellow. Is summer over yet? If you take a look at the three lowest points today, you can potentially see a triangle formation that would be looking for resolutions sometime tomorrow. But as we've dicussed, we don't put as much weight into the intraday triangle as a long term day over day. What? You want an example? Well, I'm sure we could find one but it probably wouldn't be pertinent to looking at the current time and the current MBS coupon. That would just be... huh... what? We got one?
Oh! OK ladies and gentlemen... It appears the example is ALSO from the 4.5 MBS and includes today's trading session as well! Wow, I truly am shocked!
First, let's take a look at the naked version of the chart. Hopefully your kids are already in bed...
See any triangles? There are a few. Here are the two I am looking at... One with red lines, but a sneaky one that borrows the top line from the red triangle and suggests and alternate bottom line in yellow based on the recent uptrends.
If you're still wondering how these things make "triangles," take a look...
The red triangle is pretty much over and done with. Depending on who you ask, this breakout to the downside is "bearish." Try to get more of a commitment than that from someone and you may be out of luck. Something I've said in the past though kind of gotten away from as I didn't want the audience to "count on it" in any way shape or form is that the two lines that form a triangle continue to be significant even after the triangle is broken. I don't think that's my original idea by the way, probably John Murphy's. At any rate, one might reasonably find support for that very notion in the above chart... Why?
Simply put, after the red triangle is broken, prices rally again but cannot break either line from the red triangle. 2 very accurate bumps on the ascending line, and another very accurate bump between yesterday and today on the descending line. All that to say, there are two ways to look at "old yeller" here (audience whispering: i think he's talking about the "YELLOW" triangle and expects us to get the reference that Old Yeller was thusly named due to his yellow coat... He's crazy huh...). It could either stand on it's own in which case, no conclusions are yet drawn and we are waiting to see which line is broken. Or we could look at it in the context of the red triangle, knowing that the original indication was bad for MBS, and that those trendlines may still inform trading despite the creation of this new triangle. At the very least, you might want to give a nod to their resistance-type forces in that case.
What does it mean for tomorrow and your pipeline? I don't know. Just pretty pictures really... Ok, I wouldn't go that far (but almost). The moral of the triangle story is that of "COMPETING TRENDS." Several uptrends and downtrends either recently established or longstanding are colliding. This is a frequent occurrence in many markets, and sometimes it's just a matter of picking out what the individual wants to see. In this case though, a bit more prominent than normal... For now, the downtrend gets the slight nod here above par, but I wouldn't make any assumptions about either of these competing trends unless one of them is violated by a significant margin and for a significant amount of time.
We'll let you know when we think that comes of course, but for now, it's the same old story: try to lean towards locking when we're at the top of recent ranges, towards floating when we're near the bottom, and if you're on a fence about locking or floating, consider recent momentum. because of the RANGE, and the CHOPPINESS, you'll usually find your best prices on the third or fourth consecutive "up" day and when they're near the top of the range (on the rare occassion that you actually get to see both occur at the same time!).
Consumer sentiment, and another report that doesn't seem to be on our radar much historically, but seems to have everyone talking this month: Incomes and Outlays. Maybe it has something to do with this whole notion of "consumer led recovery" or something about employment taking a toll on spending, etc... See ya tomorrow...
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