Meant to post yesterday:
Today’s stock swoon, due to financial sector led selling, has given us a little boost this morning. Earlier today, Leading Economic Indicators fell .3% to 98.1, .1% worse than expectations. The board’s lagging indicator index fell .4% as only one of the seven components advanced. While stock market gains, money supply liquidity, and low yields help this report, building permits and the index of supplier deliveries provided the overwhelming drag. Fits well with our bias of the economy bumping along the bottom. For the most part, light volume has been the theme to start the week.
Stocks are off 250 points on the big board as B of A reported better than expected earnings but revealed escalating losses in commercial MBS and commercial/industrial loans. Actually, the market is not sure whether Ken Lewis (CEO) is overly optimistic or just lying. All of the above has given the 10 year note a goose higher, trading up 23/32’s to yield 2.85%. Mortgage backs are along for the ride, up 5/32’s as I type.
Pricing today has been more about timing than anything. Late Friday, the market sold off to levels which were not priced into most price sheets. In other works, mortgage pricing was “rich” to the street. Today’s gains are nice but not enough to recoup the late day losses on Friday. We would however, be another .125 to .25 worse today without our current rally. Hope that makes sense. Technically, the chart looked like a bad dog on Friday, closing with sell signals and bearish trends on most time frames. The stability and gains today are challenging those bearish signals, including trend intensity. We are now forming an inside day up, bullish in nature but not a rejection of the larger time frame bear move. To endorse a new bullish trend, the market will need to close at or below 2.81% on the note. A trade above 3.0% will confirm that bears are in control and higher mortgage rates in vogue. As you can see, currently we are in no man’s land at 2.85%. Good time to remain cautious.