We want to like the market, feeling that mortgage rates will improve down the line but at the same time, are very, very nervous about the old high yield mark at 4.0% being the bottom.

Oh what a difference a day makes.  Yesterday’s failure from major resistance provided food for the bears.  Today we are seeing a continuation of the pattern.  Currently, the 10 year note is off a smooth point, mortgage backs off 29/32’s, and stocks up 70 on the big board.  The 10 year note is at a very critical juncture, trading at 3.77%.  Yield levels at 3.75% represent the 8 day moving average while 3.79% equates to a 38% retracement of the resent rally.  Bulls need a bounce from this level to prove this is a correction in a new bullish move.  Daily charts are in our favor while Weeklies are bearish.  Given that we will face an on slot of supply next week (probably 100 billion of 2’s, 5’s, and 7 year notes), I would put odds of current levels holding at only 35%.  The weakness today got some fuel from Continuing Claims falling for the first time in months.  We see it as unemployed workers running out of benefits, not job creation.  Leading Economic Indicators rose 1.2% and the Philly Fed index improved to -2.2.  Not necessarily bullish news but good enough to boost the confidence of bearish market sellers.  As we have continued to preach, this market moves quickly and is extremely volatile.  Take care of your business at that moment, not 5 minutes later.  Bigger picture, we want to like the market, feeling that mortgage rates will improve down the line but at the same time, are very, very nervous about the old high yield mark at 4.0% being the bottom.