Austin Mortgage Blog

Posts Tagged ‘bearish’

Short term, Austin mortgage borrowers are encouragerd to stay defensive

It’s early on Monday morning and the market already looks like Ventura Highway.  Stocks were lower in pre-market trading (bonds higher) until Fed Ex came out and revised 3^rd quarter earnings (quarter ending 8/31) up 20 cents a share and pushed guidance higher for the remainder of the year.  Stocks turned around, going positive and as a consequence, bonds, notes, and mortgage backs took a dip.

Then along came New Home Sales, expected to be 320K annualized units.  The print was much better than that, up 24% to 330K units.  Stocks got another boost (now up 68 on the big board) as fixed income instruments (such as mortgage backs) dipped a little deeper.  Currently, the 10 year note is off 10/32’s (yield 3.03%) while MBS are off 4/32’s (tighter spreads which is good).  We also had the Chicago Fed National Activity Index out, which dropped .94 to its worst level since October.  Manufacturing output, or the lack thereof, did the trick.

Fast money is selling the long end of the curve, dragging the 10 year note along with it.  Not a lot of downside is expected from here.  The week ahead will feature Case Shiller Home Prices, Consumer Confidence, Durable Goods, Weekly Claims, and GDP on Friday.  Good week for data and market moving volatility.  For the week ahead, we see the market weaving and bobbing with a neutral/bearish type bias as investors will be looking to buy treasuries at yields slightly higher than current.  We still like the market long term as the detours are everywhere.

Short term, Austin mortgage borrowers are encouragerd to stay defensive.

Austin borrowers are advised to lock in their Austin mortgage interest rates and step aside as we’re not sure whether the light in the tunnel is the end or a train

Weekly Unemployment Claims hit the tape plus 13K this morning while Continuing Claims jumped 43K to 4.62 million.  The rise canceled out last week’s drop and brings the 4 week moving average to 466K.  Not the type of print that notates a recovery in jobs.  Pending Home Sales didn’t do us any favors, falling 30%.  This level was last visited in May of 2009 and in our opinion, represents much more than losing the 8K tax credit program.  Construction Spending completed the bearish economic trifecta, falling .2% as private spending did the damage, down .5% month on month.

In the glass half full category, Ford, Chrysler, and GM all posted sales gains as that sector starts to stabilize.  Currently, stocks are off 61 points on the big board, 10 year note is plus 8/32’s, and mortgage backs are off 2 to 5/32’s, depending on the interest rate.  As I have talked about in the past, money flows are coming out of foreign sovereign debt and into treasuries.  Trouble is, that’s as far as the money goes.  Risk/reward is moving more and more towards risk in MBS, corporate paper, and anything other than an instrument backed by the full faith of Uncle Sam.  With stocks trading firmly below 1040 on the S&P chart, investors are net bearish, looking for a pull back to 940/970.  That would clip the Dow for 1 large.  Add to it the uncertainty of tomorrow’s Employment Report and all you see is traders with a fist full of scared money.

Speaking of the jobs number, the call is for job losses of 100K.  We’ll preview the report later today.  Given what we know, we see the pull back in mortgage paper (higher Austin mortgage rates,  lower pricing) as nothing more than consolidation, expecting that it will not become a major reversal.  However, we are seeing a divergence set up on the daily chart, telling you that a least a pause is in order until tomorrow’s fireworks begin (7:30 am cst).

With risk reward not in your favor, Austin borrowers are advised to lock in their Austin mortgage interest rates and step aside as we’re not sure whether the light in the tunnel is the end or a train.

Expect Austin mortgage rates to stay low for some time to come

Just when you thought the economy was doing a little better……. someone throws cold water on it. The chill came via Weekly Unemployment Claims which jumped 12K to 472K. The higher than expected claims number was largely the result of new filers from manufacturing, construction, and educational services.

Continuing Claims rose as well, up 88K on the week. CPI, inflation at the consumer level fell .2% with the core index up .1%. Just like PPI, nothing in the cards here to rattle the Fed. Philly Fed was also on tap, falling like a rock from 21.4 to 8. Employment indicators within the index did the damage, falling 1.7 points.

Last but not least, Leading Indicators rose .4% in May. Nothing special here as this index is widely treated as “rear view mirror” data and typically kicked to the curb. Overall, what is starting to take shape is a weakening situation in both housing and employment, coupled with falling consumer confidence. The BP mess doesn’t help either as the sickening scene from continued oil flowing does nothing for one’s psyche.

Market’s are red hot for bond bulls and woe is me for stock holders. Dow off 50 points has led the 10 year note higher by 20/32’s (yield 3.21%). Mortgage backs are plus 11/32’s, having a nice day as well. Technically, prices are nearing the best levels of the year (3.14% yield). Bulls will need to close below that level (3.13% or lower) to break out of the triangle pattern we’ve had in place since May. Daily oscillators however are bearish so overall, we do not have all time frames in harmony.

In English, it will become more and more difficult to improve Austin mortgage pricing/ lower yields without new fuel (catalyst). At the same time, the economic fundaments do not support higher Austin mortgage rates or worsening mortgage pricing. So, expect Austin mortgage rates to stay low for some time to come. Stay tuned for tomorrow.

Friday’s Employment data will be huge; some are calling for as much as 600K new jobs created

Lackluster trading is in vogue with both bonds and stocks.  Stocks, depending on the day, are up 100 or down 100.  Today is an up day with the big board trading at 10,129, up 106 points.  On the chart, S & P futures have good support at 1050 and solid resistance at 1104. They are coiling for a breakout with the $10,000.00 question being which way?  Bonds, notes, and mortgage backs seem to waffle around in a range of plus 2/32’s to down 2/32’s.  Currently, the 10 year note is off 4/32’s to yield 3.31%.  Mortgage backs are off just a 32^nd.

Earlier today, Pending Home Sales hit a 6 month high, up 6.0%.  Funny what 8K can do to a person.  Every region of the country except the South had nice gains.  The Northeast led the way at plus 29.5%.  For the most part, we continue this risk aversion trade, continuing to struggle with European debt issues and softening growth in China.  On the debt front, those sick and hurt countries need to roll over 30 billion Euro in debt this month and 500 billion in July.  I wonder who will show up to buy the paper.

At home, the economic data continues to show stability and slight growth as the days and  weeks pass.  Friday’s Employment data will be huge.  Some are calling for as much as 600K new jobs created.  Keep this in mind today and tomorrow as a print of that magnitude will raise holy H E double hockey sticks with Austin mortgage pricing. Be square or beware.  We’ll handicap the report tomorrow.

Technically, the chart is telling us to be cautious.  Sellers have been dominate the past two days, pushing sell signals into play on the daily 10 year note chart.  Oscillators have rolled over to the bearish camp as well, stalling from midrange levels.  Nothing huge here but a bearish feel is setting up and into payrolls, we could see traders square up, pushing yields a touch higher.  With the run we’ve had, best bet is not to throw caution to the wind come Friday morning’s data.

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Latest news regarding the Euro zone’s debt crisis was again good news

Treasuries have been under pressure most of the morning as the risk trade was back on.  The latest news regarding the Euro zone’s debt crisis was again good news.  Spain announced sharp austerity programs to cut its budget deficits and the EU aims to seek further power over member country budgets.  In a nutshell, the news added more of a boost to global stocks after opening higher.  Stocks have held nice ground today, currently trading up at the highs at +140 points.  While our 10yr has suffered a little more, mortgage backs opened flat and still continue to trade the range.  Mixed conditions are being expressed on price charts by a triangle pattern between 121-015 and 118-12.  The pattern is not bullish, yet not bearish, needing a breakout to confirm a direction.  The lower line, support, has been breached, but a break below the preceding low at 118-225 is needed to boost the bearish case.  We are currently sitting about 118-275 on futures.  The upper line, resistance, lies at 119-07.  Above that area would shift conditions bullishly, but would require a break above 119-13/18 to confirm it.  Directional signals are mixed to say the least.  Treasury has just auctioned off $24bln new 10yr notes, which was reduced by $1bln from the last issue in February.  The issue tailed about .2 bps stopping at a 3.548% yield, which was very good.  The bid to cover was on the lighter side only seeing 2.96% as opposed to the average around 3.04% seen over the last six auctions.  Indirects were right on the button coming in at 41%.    Overall, the auction gets a B from most economists.

Stock market strength has pressured bonds, notes, and mortgage backs as we head towards the close

Stock market strength has pressured bonds, notes, and mortgage backs as we head towards the close.  With the Dow up 96 points trading well over 11,000 and S & P’s over the 1200 level (which was good resistance and very psychological), the path of least resistance is for additional improvement.  JPMorgan gave stocks the boost from the get go, beating earnings expectations by 10 cents and saying all the right things about credit quality improving etc.  The 10 year note opened in the red but by only a few 32’s, holding onto the breakout level below 3.83% yield on the 10 year note.

That bullish momentum has been challenged as we are now trading at 3.86%.  Technically savvy traders call the formation a “double top” that you can see by the horizontal line across the top.  Confirmation is now being made as we have taken out the base from which the last leg of this rally started.  In chart terms you can see this is the level below 116 10 (closed futures session at 116 09).  Traders call this a “bear trap”, stranding the bulls on the expected breakout above 116 10.  Further confirmation of the next move being to worsening Austin mortgage pricing can be found in the fact that we failed to hold above both the 8 day and 21 day moving averages.  They cross the right side of the chart at 116 12.  SStochs have also made a bearish cross.

In proper context, the selling today has been a function of overbought readings and the need for consolidation.  We do not think its anything huge but will most likely correct to 115 31 on the chart (yield equivalent of 3.92%).  Mortgage backs are now down 11/32’s on the day and will probably give up at least another 8/32’s before we reach our target.  Time to be careful out there.

Just a note as we head into the final hour of trading

Just a note as we head into the final hour of trading.  After strength took us through the major down trend line, the market failed and made new lows (highest yield of the day) into the CBOT 10 year note futures close (2:00 pm cst).

Let’s put the analytics into his terms.

The session formed a bearish candlestick that includes a long upper shadow and a bearish real body.  The real body also shows some “Harami” traits (reversal).  Conclusion without all of the Jack jumped over the candle stick BS is that upside momentum (rally) is not anticipated but neither is strong selling (bearish momentum).  Trend intensity is now neutral which fits with our (not Barry’s) Goldie Locks scenario.  As we speak, the 10 year is off 6/32’s (yield 3.89%) and MBS off 4/32’s.  Expect a range trade to develop.

Trust me, the pattern is bullish

Meant to post this yesterday:

Couple of things I’d like to point out as we close out the trading day.  First of all, the market had an “outside day up.”  What this means is that we made a lower low than the previous day, only to close above yesterdays high level.  In Austin mortgage terms, we had pricing at one time today that was worse than yesterdays only to close above yesterday’s best level.  Trust me, the pattern is bullish.

The tricky part of a bear market is that it can turn at any time.  Look at the chart.  You will see the down trend line that began in late February.  Way on the right side, you will see that last bar of the chart has reversed and is now ascending on that down trend line.  Also, if you look at the oscillator SStoch, meaning slow stochastic, you’ll see that it has yet to cross.  A cross is needed to confirm that the sellers have lost their edge.  RSI and MACD are neutral and of little help.  The point I’m trying to make is yes, we’ve had a good day but no, do not trust it.  It’s looking better and the bears will need to prove themselves tomorrow.  If they don’t, we’ll feel a lot better about a range developing between 3.75% and 4.0%.

One more thing, for those of you who would like to know more about a tool we use call Fibo Retracement Levels, I’ve put them on the chart.  Notice that we start at the highs which represents the top or 1.0 and stretch to the bottom labeled 0.00.  This would be a full retracement (high to low or low to high).  Fibonacci theory relies on measured moves within one standard deviation.  Therefore, the most likely targets lie at .375, .50, and .625.  We like the way that 3.75% come in at the 50% retracement level.  “If” we’ve put in a bottom for this trading turn, that’s the most likely target.  If the bears take over, we’ll be on our way to 4.25%.  Don’t go to sleep out there but at the same time, you may now exhale.  Hope you enjoy and are learning something from this rambling missive.

The key here is neutral not bullish, telling us that continued upside (better mortgage pricing) will be a challenge

Results of the 5 year note auction (42 billion) just hit the tape at a yield of 2.395%.  40.3% were taken by Indirect bidders (good), 12.8% by Direct bidders (ok), 2.75 to 1 bid to cover ratio (average), yet the issue created a 1.5 bps tail (not so good).  Reasons for the auction to be on the sloppy side are 1) charts at stiff resistance and overbought 2) strong stocks (Dow plus 106) 3) Bernanke’s testimony touting “low mortgage rates for an extended period, no assets sales, and continued evaluation of security purchases”.

The latter is stock friendly and worrisome to bonds (inflation).  Earlier today, New Home Sales fell to a record low 309K units, off 11.2% in January.  Sales in the Northeast took the most beating, down over 35%.  Weather was certainly a factor so we are looking for a bit of recovery coming in Feb/March.  Technically, the rally we’ve seen the past couple of days has improved the charts, turning the trend to neutral from bearish.  The key here is neutral not bullish, telling us that continued upside (better mortgage pricing) will be a challenge.

Currently, the 10 year note is off 1/32^nd to yield 3.70%, mortgage backs unchanged, and stocks up over 100 on the big board.  Caution is advised.

We expect a larger bearish move (more selling/worsening mortgage pricing) in the days ahead

The first trading day of the week is off to a slow but positive start.  Although the 10 year note is down 2/32’s (yield 3.79%), mortgage backed security spreads have tighten, posting gains of 5/32’s on the day.  Stocks have been of little help, waffling on either side of unchanged all day.  No news this morning but the calendar will heat up as we move towards the end of the week.

Of particular  importance will be the Housing data on Wednesday and Thursday, followed by 4^th Qt. preliminary GDP on Friday.  The treasury auction calendar is in full swing with 126 billion up for grabs, starting tomorrow with 44 billion of 2 year notes.  The good news here is that all the paper is shorter in duration (2 year through 7 year) which should have better appeal to the investor community then the debacle 2 weeks ago.  Another key to market direction this week will be Sir Ben’s testimony before the Humphrey-Hawkins group on Wednesday and Thursday.

We expect him to manage his speech and question/answer period back to “core” Fed values, emphasizing low mortgage rates for and extended period and no assets sales until some sort of economic recovery is well underway.  The technical view of all this mumbo jumbo is to stay defensive, selling rallies into auction supply and Sir Ben.

Intraday charts have improved but the lack of strong gains and bearish readings on daily charts suggest that the market is corrective in nature.  If our work (and that of others ) is correct, we would expect a larger bearish move (more selling/worsening mortgage pricing) in the days ahead.  To avoid another leg down, we need to close below 3.74% on the 10 year note (end of day close).  Best to keep both hands on the wheel.

Related articles

• Economists See Firm Recovery In 2010, Job Creation In 1Q (blogs.wsj.com)
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• Experts Talk Fed Exit Strategy, Trade, Greek Bailout (businessweek.com)