Technicals, trade flow, and the range trade have been pitching relief for economic and market fundamentals all week. And no matter how convincing a start the fundamentals provide, the range trade has thrown no-hitter saves 4 out of the last 4 days...
As we've discussed, the tendency throughout the range-trade's recent dominance has been for fundamentals--particularly economic indicator data and headlines--to be used as a pawn in order to catalyze movement between technical price levels. Hence the pitching analogy... The starter kicks everything off and even ostensibly sets the tone of the game, but closer gets the win. And in this scenario, it's more appropriate to think of the starting pitcher succumbing to injury after the first inning...
Either that or the relief pitcher has bee rushing the mound--not out of anger, but rather eagerness to pitch a better game than the starter. So the analogy gets tenuous if you start thinking about how the real world wouldn't allow such a farcical ceremony to occur, but in the trading world, it's been the rule, not the exception. For the sake of space, we have to take the last 3 examples of this as read and move on to today.
In case you missed a chart from earlier in the day, and on the chance you don't want to click HERE, this was a mid-day example of the general phenomenon. Also, it's marked up sufficiently that it requires no other written explanation, but can at least serve as timely example for those who need it:
Hopefully at this point, charts like this in conjunction with all the discussion on techs and the range in recent weeks have you starting to form some assumptions about the nature of the rest of the day, or at the very least prevent surprises. Fast forward to the end of the day and forget any data came out, and recall the discussion two nights ago on the "orbital" nature of prices around the gravitational pull of technical price levels....
If you're not chuckling in amazement a bit, here's why you should be.... If you didn't have the play by play of the day's events and were privvy to nothing else besides the trade flows, this would quite logically and quite simply just look like an orbital movement of intraday prices around a "high-gravity" technical price level, in a linear fashion for both highs and lows, coming finally to rest within 1 tick of the price level itself by the close. (but futures don't really "close" in the same way MBS do... so I'm fine with it simply falling within the triangle by day's end.... Pretty cool no?
The effects were seen in the MBS and cash tsy markets as well:
Don't get too involved with assessing the various lines on the chart. The solid ones simply show a similar "honing in" of prices from a wide range to a narrower range by days end. The dotted lines show some "internal" trends that have touched either numerous or frequently visited highs and lows over the past two days. No major argument about the meaning behind this other than to say that triangles and internal trendlines are both page 1 inclusions in the Technical Analysis lexicon, so it's just a note that other markets supported the conclusions that could be drawn from the previous futures chart.
But don't forget that we ARE IN FACT waiting for some sort of force that's significant enough to nudge our happy little planets out of their orbits! And although we haven't seen it yet, it could come at any time, abruptly or gradually, sooner or later... So with tomorrow being a historically volatile day of the week and with data limited to housing and Dr. Ben (Kohn speaks later as well), be prepared for action. Markets have shown the ability to move big (and sometimes unexpectedly) when Bernanke has the mic... Not only that, but it's the conclusion of Fed Homecoming week and perhaps some opinions are waiting on tomorrow's fed-speak before taking their ultimate shape for the week.
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