Notes, bonds, and mortgage backs have taken a breather from the selling today, improving the odds that a near term bottom is close by. Earlier, Weekly Unemployment Claims fell 21K to 434K, the lowest level since early July. Continuing Claims also took a dip, dropping 121K to 4.356 million. The numbers are encouraging but also volatile.
Smooth line four week moving average is at 453K but is moving lower week by week. Key for today will be the outcome of 29 billion in 7 year notes which will cross the auction block at high noon cst. Technically, the 10 year candlestick chart has the makings of a bullish real body engulfing pattern which would limit further weakness. On the other hand, Elliot Wave Theory points to an A wave which will take the market to targets I mentioned yesterday (2.78% on the 10 year note) before a B wave correction occurs. “Real men and women” who use bar charts see shorter time frames (60 minute chart) oversold and due a small bounce. That is what is happening now. Longer term charts (daily) are still bearish and project a move to 2.78%.
As you can see, when multiple trading tools are not in harmony, nobody is happy. Uncertainty leads to volatility and in this case, give the bears the edge. Stocks will also be key, currently down a dozen on the big board. Speaking of stocks, we feel that next week’s mid-term elections are priced in, reflecting a win for Republicans in the House (taking majority) but not in the Senate. The political outcome would be gridlock, limiting spending/taxing/etc. as we move into 2011. Outlier events would be a takeover of the Senate (very bullish for stocks/bearish for bonds) or not taking control of the House (bearish for stocks/bullish for bonds).
With the elections and the Fed meeting next week to hopefully clarify QE2, things could get wild. We also have the Employment report for October a week from tomorrow. Austin mortgage borrowers are advised to take advantage of any rate improvement we see as the skies have yet to clear.