Strange start to the week as stocks opened on the positive side, following through as Asian and Europe all posted gains to their indices. Bonds and mortgage backs were on the soft as fast money seller continued Friday’s trade and pressed the market lower (higher yields). Then, a funny thing happened on the way to the forum, Retail buying (banks and money funds) stepped in the buy the dip. That support, along with very oversold conditions on the 10 year chart, has given us a nice reversal.
The week ahead could be bumpy however, as 109 billion of 2’s, 5’s, and 7 year notes come to market. Auction supply always puts a cap on rallies so keep it in mind as the week moves on. No news today but the ball gets rolling tomorrow with the Case Shiller Housing Index, Consumer Confidence, FHFA Housing Price Index. Wednesday’s treat will be Durable Goods and New Home Sales. Thursday’s child is Weekly Unemployment Claims and GDP (Preliminary Q3). Friday will close out the week with Personal Income and Outlays.
Not a bad idea to take advantage of any positive price changes today. Reason being is that we formed an outside day down on Friday (bearish formation) yet selling was limited (today) to the 40 day moving average. The bounce (current rally) has not been enough to offset Friday’s move and while intraday studies are oversold, daily signals are neutral. English translation is that the rally could be short lived in front of 109 billion in paper and a stock market that just won’t break