Stocks are doing a little better this morning (up 57 points on the Dow) on what many are calling the “Bernanke Bounce”.  Seems as though he has enough votes to be reconfirmed for a second term, settling jitters across both equity and fixed income markets.  While this is a plus, the political climate resembled “charged chaos” which has put much more emotion into traders decisions.

Existing Home Sales hit the tape down 16.7% to 5.45 million units, the largest decline since 1968.  Economists were looking for a much better number.  While sales declined in every region, inventories came down a bit, a good sign that “maybe” we can work through glut even if government support dwindles.  We believe that the need to continue both the 8K program as well as the MBS purchase program is needed and will be extended until year end.

The week ahead will have a lot to chew on starting with 118 billion in auction paper (2’s, 5’s, and 7 year notes), the FOMC meeting (Tuesday and Wednesday), the State of the Union speech on Wednesday evening, and a number of economic data points to boot (see attached).  Technically, the bias is to stay defensive until later in the week as we work through the auctions, Fed, and the President’s message.  Chances are good his speech will focus on jobs, jobs, and more jobs.

Currently, the market is slipping a bit as current coupon MBS are off 6/32’s and the 10 year note trades a 3.63% yield.  Be careful out there.