After the MBS markets "fizzled out" yesterday, change may be on the wind.  Indeed, this morning, there are several factors that point to a potentially good day for MBS.

1. The relatively unimportant ICSC Store Sales Numbers showed a .4% decrease month over month and the year/year gain of 1.3% last month dropped to 1.0% this month.  This data isn't a huge impacter, but it does not hurt our case for a full-blown recession.  This data coincides with the Redbook release which also showed a modest gain of 1.4%, likely bolstered somewhat by holiday sales.  Tepid or weak store sales are another indicator of a slowing economy.  This tends to drive a bit of investment towards fixed income securities which helps mortgage rates stay low.
   
2. The Case-Schiller Home Price Index posted its 19th consecutive drop.  The reading this time was a fall of 11.4% in January, the largest since the index first started reporting in 1987.  The composite index (a broader measure), also fell 10.7%, marking the first time both indexes have crested double digits.
3. Yesterday was a fairly "big dipper" for the fixed-income markets as stocks rallied.  This is historically likely after a holiday weekend, but nonetheless, MBS and US Treasuries gave up huge losses.  And why is this point in a list of factors that will have a good impact today?  The pendulum effect, and/or technical analysis.  We've been in a bit of a trend channel for the past week or so with the price of a FNMA 5.5% MBS unwilling to go above a certain amount, but also unwilling to go below.  We approached the lower range of that channel yesterday which, on a purely technical read of the data suggests a greater upward for will be exerted on MBS today.  Think of the price graph line like a rubber band: the farther you pull it from the middle, the more it wants to snap back. 
   
4. Consumer Confidence, set to release in 30 minutes, will likely post another decline.  February's Confidence numbers were the worst in about five years, with the "expectation" component reading its worst since 1991.  If we hit or even surpass analysts' estimates of weakness here, it will be a bit of a cold shower for the stock market, and will generally help bonds such as MBS.

With the most important report of the day (Consumer Confidence) not out yet, the technical "rubber band" pulled tight by soaring stocks and tanking bonds yesterday, and no other positive reports for the markets to digest, we are poised to see the Confidence report snap the stock market back into reality.  One day, JUST ONE DAY of better than expected home sales (warning: opinion starting now), and the news media is all abuzz with talk of "is this the first sign of the recovery?"  Stocks went up, "experts" changed their tune, and lemmings breathed a sigh of relief thinking they might avoid a cliff.  All of the sudden, the market became positive.  No People!  You have to get a little more backup than February Home Sales numbers (which are historically not a good indicator of trends), before you come out from the bomb shelter.

More bombs are on the way, and there are more cliffs for the lemmings to test their perceived new-found ability to fly.  It's not going to happen right now, and as long as home prices continue to drop, it would take a miracle of education in financial discipline for the current situation to do ANYTHING BUT continue to drive the consumer into the ground.  One thing the talking heads can seem to agree on is the importance of the consumer to the economy.  Weak consumer, generally, will help MBS for that reason.

So stocks have gotten a bit too pumped up considering the data, and MBS have gotten a little deflated.   Despite good futures trading, the Dow has failed to post a significant gain since open and the MBS is holding an equal "poised" stance on the other side of the bond pond.  Once the Consumer Confidence numbers are released it could very well be "off to the races."

I'd float into the release (now 10 minutes away).  If it's stronger than expected, seriously consider locking as two days of positivity would have the bulls dancing all over the corpses of the MBS.  if it's the same or weaker than expected, get out the water wings and the inner-tube with the cooler lodged into it because we'll probably be floating.