After a fairly diffuse smattering of diverse data over the past two days, Wednesday changes things up.  Unless you ascribe any special importance to oil inventories, both of tomorrow's headline items hit right at 830am, preceded by the standard weekly MBA survey at 7am.  As far as the double impact at 830, it's CPI and Housing starts...  Both always fighters to be reckoned with... 

As far as double impact today, AQ did a great job covering the tradeflows and hopefully after this post, I will have done at least a serviceable job of highlighting some of the technical considerations.  Sure we both crossed over a bit, but that didn't seem to make for as potent of a segue as the "double impact." 

The "stuff" that AQ discussed in the Open remained pertinent throughout the day and bears repeating:

"buying beget more buying yesterday as short positions were forced to cover as rates prices rallied. While this added momentum to the price appreciations, it also added a layer or base of support. Because several short positions were forced to cover...they now can play the current market however they choose."

Sort of a capitulation trade in reverse...  (It's capitulation either way if you ask me...  short positions are being abandoned and or surrendered).  As far as how that held true throughout the day, take a look at a little more than a day of the 10yr yield...  I was plotting my own level lines that looked informative on the day based on the curve itself in conjunction with yield spikes.  After the 3rd or 4th line, things started to look familiar...  It turns out my man Leo had my back from the start!  (Leonardo of Pisa credited with popularization of Fibonacci sequence)..

Yeah, that's those lines with the 0,23,38,50,62, and 100% marks...  No... I don't know what they mean either, but it sure seems like this little line thingy that comes up when I tell the computer to chart a 10yr bumps into 'em quite a bit over the past two days...

Look, I already know that not everyone is going to consider these levels significant.  And maybe they're not, but consider this: if we look at all the instances where two consecutive highs or lows happened to be at the same yield level today, a VAST majority occur at the retracement levels.  Regardless of what names we want to ascribe to the yield levels that served as support and resistance throughout the day, the important thing to see is the connection to what AQ was saying about the capitulation trade and traders, once forced to cover, now can "play the current market however they choose."

Despite the mini-snowball this created in tsy's, the flatter and lower curve opened the door for MBS to widen without giving much up in terms of prices.  MBS sold a bit outside the narrowing trends in the last few minutes of the day, but considering the frequency with which we mention the illiquidity of such hours, you may well agree that a wider and more volatile range in the morning gave way to narrowing trends of higher lows and low highs into the afternoon.

So if you nix the 830 price spike, MBS turned out to have more of an "inside day" whereas tsy's actually broke out of theirs.  (inside day = today's high and low point falling inside yesterday's high and low point). Tsy's were indeed setting up for an inside day when we first looked at futures today.  On that chart the most recent candlestick was contained within the range of yesterday's.  But by day's end, we see futures sticking their head up to survey the big big world above...  Like a cute and courageous little prairie dog...

That's a nicely behaved trend channel to be sure, but it was just the puddle jumper charged with getting futures to a much more serious point of embarkation (potentially...)  Or if you want to stay with prairie dogs, let's take a look at why said prairie dogs could be said to be observing the "big big sky."  Zooming out...

So there's the same trend channel from the previous chart, but this one is zoomed out back to may.  As you can see, this is about as high as it gets for 5+ months..  Should be interesting too because the last two times intraday prices touched these levels it came from big intraday movements from a generally lower trading range.  Comparing the 3 candles that touch the line, today's is tame by comparison...  So does that mean we're approaching this time with more stability and support? 

meh...  Not really...  Some really huge similarities int he 3 cycles... 

1. they all started around 117's.

2. they all last about a month

3. And most interestingly, each trading session that immediately precedes the actual day where the level is touched is a massive rally...

Hmmm... Something's going on there... Any bright ideas?  Oh!  and also, don't overlook the fact that this level (119-29 to 119-30) is exactly in line with the lowest close in May's range before falling into a completely new and significantly weaker summer range. 

What does it mean will happen tomorrow?  Heck, I don't know... Probably will be influenced by the AM data, fundamentals, etc...  Maybe sprinkle in some range trade to define the range, and meaningful breakouts of established ranges only to occur if data or other fundamentals provide sufficient justification...  That's just my guess...  Well, it pretty much has been ever since we first started talking about the range trade...