TGIF. To say the least, today’s trade was a little messy. The Dow and Naz look like evil twins, ending the day plus 33 on the Naz while the big board lost 32 points. It was all about Google and Apple. Notes and bonds took it on the chin for the second day in a row as traders holding long positions after yesterday’s trade jumped ship when Big Ben failed to deliver.
Retail Sales and strong manufacturing results out of the Empire State didn’t help either. Mortgage backs performed better than treasuries as spreads tightened. Technically, it is time to pay attention. Weak day structure on the 10 year note chart is reinforced by a second consecutive day close below the 8 day moving average. That’s the bad news. Good news is that intraday studies are very oversold and the market has good support close by. So to speak, we are at that line in the sand.
Next week will be the true test, one that we would expect will see the market trade sideways to a little better (slightly improving mortgage pricing). Overall, we think this is the low probability trade as QE2, even though it is fully priced in, is a force to be reckoned with. When the Government is the buyer of choice, most follow the ant age, “Don’t fight the Fed.”
Call it neutral/bearish and not a market to throw caution to the wind. Next week’s data is light with Housing numbers, Leading Economic Indicators, Philly Fed Survey, and the Fed’s Beige Book. Have a great weekend.