Wednesday - February 12, 2014, 11:35am ET

Current Trend Direction: Sideways to lower

Advise Your Clients: Carefully Floating

Current Price of FNMA 4.0% Bond: $104.19 -19bp

Mortgage Bonds continue to drift lower with prices opening or gapping lower than yesterdays worst levels - not a good technical signal. With Stocks roaring higher yesterday, it was easy for Bonds to back away from a strong ceiling of resistance. The glimmer of hope? The Bond is sitting right on the 200-day Moving Average support level. Let's hope it holds or another round of selling will take place.

At 1pm ET, we will hear the results of a whopping $24B 10-Year Note Auction. This comes on the heels of yesterdays stellar 3-Year Note results. It will be interesting to see how this auction plays out after the recent spike higher in yields.

The Mortgage Bankers Association reported today that its Market Composite Index, a measure of total loan application volume, fell by 2% in the latest week despite a decline in home loan rates in the past month. The refinance index declined by 0.2%, while the purchase index fell by 5%. The Market Composite Index hit its lowest level at the end of 2013 since December of 2000.

In the absence of any other economic reports today, we have the auction results, Stocks and the technical picture to follow.

And this from our pal Elliot Eisenberg, Ph.D., With the unemployment rate at 6.6%, dangerously close to the 6.5% level at which the Fed has repeatedly suggested they will start raising short term rates, expect some quick Fed backpedaling. With wages stagnant, labor force growth weak and tapering having barely begun, a rise in short term rates will not happen. The Fed will either overtly deemphasize the unemployment rate or reduce the threshold to 6%. Expect the former. We agree with EE. And the Fed already saw this trend unfolding, as they have clearly stated over the past couple of months that the Fed Funds Rate will stay low well past the point where the unemployment rate hits 6.5%.

With prices on the 200-day MA, you can start the day carefully floating, but be ready to lock once again.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com