Gotta love Jan and Feb...  Fans of rhetoric finally have a window to use the phrase "of the year" and get off the hook by citing its literal accuracy.  Even if MBS are only at two month highs, MBS ARE STILL AT TWO MONTH HIGHS!

For reasons such as this, locking in upon determining a reasonable amount of the gains were passed through was the default advice.  Of course with the Category One Facemelter characterized by the 16 tick gain, we wouldn't expect to see ALL those gains passed through to rate sheets, especially a day before NFP, but if you got even half of it, it was like a glorious and unexpected gift.  And EVEN IF RATES GET BETTER TOMORROW, I don't remember the last time we had the opportunity to lock the best rates in nearly two months on the afternoon preceding NFP.  So in that sense, in exchange for removing the risk of any economically salubrious effects tomorrow, you get what is, in essence, free money.  Congratulations and Cheers!

Additionally, the triumph was made all the more glorious for those on a fence last night who heeded our closing paragraph: "don't fear the back up in tsy's as if it's making a fundamental comment on the future direction of rates.  Sure, everyone that ever mentioned the words "Technical Analysis" might be left below when the capital markets rapture happens, but until then, believe in the inflection and ye shall be saved (from jumping the gun on locking prematurely if we fail to move much above that inflection point tomorrow)"  Hopefully there's a bit of triumph out there.  It felt good to write it anyway...

Thinly veiled self promotion aside, I'm really excited for tomorrow.  Stocks already fell into mostly uncharted territory today in terms of uber-informative past trading patterns, especially in comparison to the past 3 or 4 weeks where the S&P has put on a clinic in terms of emphasizing the significance of technical levels.  The sentiment that the market is technically driven is perhaps more prominent over the past 6 months than I have ever seen it.  Even better for those relegated to offering explanations is that treasuries continue to take heavy cues from stocks.  Case in point, here's today's stock lever:

So it all begs the questions: will the lever continue to be in effect tomorrow?  And if so, just where the heck are stocks going to go?  Where might they go?  And based on that, how closely will bonds follow?  Ha!  I suppose we could take it to a bit of a deeper level of murkiness and say if treasuries rally, how closely will their spread products like MBS follow? 

But I don't think it's crucial to read too much into the stock market's potential domino effect to treasuries and then MBS.  In a general sense, we have the following lessons from the past week to work with:

  • bonds have been resilient in general
  • MBS spreads have been stellar into sell-offs and respectable into rallies
  • At no point this week have we seen stocks LOSE more than 4 or 5 pts in the S&P and have tsy yields move HIGHER.  The rule rather than the exception is that tsy's have generally been at least as strong as stocks have been weak.  And in some cases have even been strong when stocks are strong!

If 1+1+1 still equals 3, then there's a good chance we'll be in decent shape if stocks do almost anything but scream insanely higher.  But even if the NFP number seems like it should suggest that, is it time to start paying attention to the things like the sentiment survey that came out earlier this week showing the most bearish sentiment in stocks since March?  Would today's "drama" about 800k+ revision to the jobs picture in some way moderate the suggested optimism from a heady NFP number?  In other words, will the reaction be pragmatic or emotional?  Now, you know AQ and I don't touch assessments of the "Freight Train" with a 10 ft pole, but I will at least say that the overall BEHAVIOR of stock prices in recent weeks is, without question, showing much more uncertainty than it did for most of the 2nd half of 2009. 

Then there's possibility that NFP will be less of an event in light of the Dubai-esque sovereign debt panic.  Remember that "Dubai Bubble" that distorted charts until it was resolved (mostly)?  Is this just the Greek version of the same phenomenon?  If so, we're at risk of a MASSIVE correction should news hit the wires that, in some way, soothes the Greek Tragedy.  But again, that assumes a high degree of causality between things whose correlation cannot yet be determined.  But to whatever extent those issues help stifle what would otherwise be a stock facemelter, I'll take it!  Not to mention the fact that the other side of that coin is that it serves as a highly flammable environment should the fires of NFP negativity be introduced.  Can you say FTQ?

Any way you slice it, stocks only have two choices tomorrow: up or down.  Moving into higher altitudes, there are PLENTY of rungs on the technical ladder that might provide resistance, support, or merely respite before seeking out a new fortune.  On the downside however, the framework is limited and lies more distantly in the past.  So print the following chart out on some thin paper and hold it up to stock charts tomorrow so you can follow along!  The more ceilings broken, very likely, the suggestion is worse for bonds, but break floors and a piece of paper taped to a monitor will probably be the best show you watch all year.