Week of Consolidation in MBS

The mortgage backed securities market has been consolidating all week with low volume trading. Cues are still the same, an inverse relationship to the stock market, and tracking and 10 year treasury.

All things considered this week should have been more bullish in the bond markets considering the contagion occurring throughout the European Union. Typically one would have expected us to see a strong rally in our bond market as Europe struggles... alas, we didn't... what's the reason?

Honestly I don't know... one interesting market point is the Italian 5 and 10 year bonds are now inverted, typically a signal to sell equities... and even though we did see a sell off in equities this week, it was relatively contained especially when one looks at the low volume traded.

Consolidations usually lead to breakouts... which i ma expecting. I think we will see a breakout that leads to better pricing, when this happens is more difficult to predict. With us moving into the holiday season I don't think we will see much activity regarding trading this coming week... what we do see will be investors preparing for their long weekends which means probably moving into cash positions across the board. If I'm right we'll see the stock market and bond market finish down in comparison to current trading levels... with some degree of give and take between the two.

The first week of December will be interesting... with three strong weeks of trading before Xmas and the super committee finished with their task one way or another, markets will take their cues from their success of failure, we may even see another downgrade from a rating agency if they completely fail (as if their successfully cutting 1.2 trillion over 10 years - that's 120 billion a year is going to do anything to our out-of-control debt anyways). A success on the other hand I think will lead to an equity rally, which will be short lived due to Euro calamity and the fact that any accomplishment they do make really is like claiming you climbed conquered the local sand bluff. Nothing to write home about unless you are a complete narcissist - wait a minute, they are complete narcissists so we'll hear about for the next week as if it's the only event transpiring.

Not expecting a late rally today, just looking to hold our ground and not fall off... an even sum day would be a strong finish for us, currently down 6 ticks... Here's a graph illustrating the consolidation we currently are experiencing.


Here's to a wonderful weekend.