Following Monday's vaccine-inspired bond rout, we're seeing markets take the middle path.  Stocks corrected to pre-vaccine levels later that same day and have been flat since then.  Treasuries retained most of their losses, but haven't broken above the important 0.96 technical ceiling in a meaningful way.  Today brings the opportunity for bond bulls to continue working up the courage to "buy the dip" in this week's bond prices (or "buy the spike" in terms of yield).  Despite modest gains this morning, the jury is still very much out.

If anything, broader market momentum is sideways.  

The bounces at the 0.96 ceiling are "nice," but at the risk of letting hindsight cloud the analysis, I would say such bounces tend to be slightly more probable than average when yields collide with 2 established trends (in this case, the horizontal/range ceiling trend line at 0.96 and the upwardly sloped ceiling of the uptrend that began in August).  To be clear, "such bounces" refers to the past few days and possibly the rest of this week, but carries no implication about the coming weeks.

A few quick thoughts on moving averages and Treasuries vs MBS...

I've noticed more chatter than normal on moving averages in the MBS Live chat.  There's nothing wrong with that, but it is important we understand the limitations of technical analysis--especially when it comes to something like moving averages.  If you've got some time to read, check out my technical analysis overview and my thoughts on moving averages.

I will give you the conclusion for the following two charts upfront: be careful drawing logical conclusions about short-term movement from moving averages, and especially moving averages applied to MBS Prices.  

Both charts show 50 and 100 day MAs (moving averages).  These are stupid numbers to use because 50 and 100 are meaningless in the trading world. We'd have a better shot at relevance using things like 22 and 88 (the average number of trading days in a month and quarter), but alas... the "standard" is plain old 25, 50, 100, etc.  Stupid though they may be, if we believe that a majority of technical traders are using the stupid numbers, they're no longer that stupid.  In other words, you'd be stupid to think the world was flat, but at a certain time in human history, openly betting against that was not a winning trade.  

Here are the 4 takeaways in comparing the charts.  

1. By the time the MAs cross (and it will always be the 50-day crossing over the 100-day to chase the daily movement), the shorter-term trend is already well underway.  Timely case in point: the current uptrend in Treasury yields began in August, but the MAs didn't cross until October 15. 

2. Treasury MA crosses typically happened much sooner than those in MBS when the ensuing trend was confirmed (i.e. not a false start/stop).  In other words, paying attention to MBS techs would cost you time/money (to whatever extent you make the relatively foolish decision to allow technical analysis alone to inform your lock/float strategy).

3. MBS MA crosses only happened sooner in the case of false starts (a cross in one direction followed shortly thereafter by a cross in the opposite direction... In these cases, the MA crosses are mere byproducts of momentum as a large-scale move levels off).  In other words, paying attention to MBS techs over Treasury techs would get you burned sooner/bigger in false start/stop cases.

4. If the current cross from last month proves NOT to be a false start, MBS will have provided your warning almost a month after Treasuries.