Todays Market Action 11-9-12
Friday, November 9, 2012 - Article by: Joe Shamie -
Friday - November 9 2012, 9:22am ET
Current Trend Direction: Sideways to Higher
Float/ Lock Bias: Switching to Locking with prices fighting resistance
Current Price of FNMA 3.0% Bond: $105.41, -6bp.
Mortgage Bonds are trading a skosh lower. The Bond has made nice 100bp gains since testing the floor of support at the 50-day MA, so floating over the past few days has served well. However, when you consider how bad Stocks have performed by losing an astonishing 500 points over the past couple days, and with the Euro dropping in response to Greek riots, and spreading economic weakness - the 100bp gains seem relatively modest.
The Fiscal Cliff debate is the elephant in the room right now. We can't imagine seeing the economy drive off the fiscal cliff. Our esteemed Congress will either find a way to kick the can down the road or do something meaningful to reduce our debt. President Obama is set to talk later today on the Fiscal Cliff issue - with the election behind us it would be refreshing and economically stimulative to have Congress and the President brush aside politics and do what is necessary to get our debt and economy on the right trajectory, something it is not on at present. At the end of the day, we are not Democrats and Republicans - we are all Americans and getting the country back to being productive and creating jobs is in all our interests.
Look at the chart shows the resistance is very clear. Unless prices can bust above these nearby ceilings, you must be more cautious and even consider locking. Yes, we may just see Bonds hit all time highs, but it may take more economic pain to get there - something we don't want to wish for. The wild card - you never know what can happen with the Fiscal Cliff debate...if the President and Congress can agree on something meaningful and unleash a surprise positive announcement we could see a very sharp Stock market rally all at the expense of Bonds.
We don't mind locking here. It is always wise to do so when near resistance, especially after a snappy little 100bp gain over a couple of days.
The market is closed this coming Monday for Veteran's Day - the next Update will be posted on next Tuesday, Nov 13th.