3rd quarter corporate earnings season is in full swing with JPMorgan, Intel, and CSX all hitting the tape with better than expected results.  News today revolved around Import Prices (down .3%) as a drop in petroleum prices offset a gain in food and non-fuel goods and mortgage applications rising as the refinance index jumped 21%.  Purchase applications fell 8.5%.

The fear factor today will be the results of 21 billion in 10 year notes crossing the auction block (high noon cst).  After yesterday’s dismal 3 year offering, the street is wondering who will show up to buy the paper.  Notes, bonds, and mortgage backs are respecting the fear of the unknown.  Currently, 10 year notes are off 15/32’s, the 30 year bond is off 40/32’s, and mortgage backs are cheating fate, down only 3/32’s.  Stocks are having a party, up 110 on the big board as corporate America churns and earns.

Technically, there are a couple of things you need to pay attention to.  First is the Elliott Wave count which has probably completed its 5 wave.  This pattern started in June and has been very accurate.  The break of yesterday’s trend line and continuance to trade below it is strong evidence that a new A wave has begun.  If correct, the pattern projects a trade to at least the 38% retracement target of 125 28 (10 year futures) or the yield equivalent of 2.58%.  This type of corrective trade could last for a month, slowly eroding Austin mortgage pricing until a bottom is found.

From our perspective, the market seems to have fully priced in QE2 and now must wait until the next FOMC meeting (11/2) to see if it comes to fruition.  The “wait” is making some nervous.  Continued corporate earnings, with the expectations that most will beat, will add additional pressure to fixed income and Austin mortgage pricing.  Best bet for Austin mortgage borrowers is to take a defensive posture.  With so much bond-friendly news priced in, the risk reward for better mortgage pricing is just not there, folks.