Mortgage News

Wednesday, November 12, 2008 11:07am ET

Current Trend Direction: Battling Overhead Resistance

Current Price of FNMA 6% Bond: $101.25, +25bp

Mortgage Bonds are trading higher, in reaction to continued weakness in the Stock market. Adding to this morning's negative sentiment in Stocks was Best Buy releasing their earnings outlook. The electronics retailer said that there has been a "rapid, seismic" slowdown in consumer spending and has lowered their earnings guidance for the year, citing "uncertainty in consumer spending"...what an understatement. This is right on the heels of Circuit City closing 150 stores.

And piling onto the bad news is lower earnings from retailer Macy's. This holiday season looks to be a disaster. And of interesting note, shares of General Motors fell yesterday below $3 for the first time since April 13, 1943. The automaker was not even making cars at that time but producing only military equipment for WWII.

There are no economic reports set for release today, but at 1pm ET the Treasury is set to auction off $20B in 10-Year Notes - and if this auction is not well received, it could temper the current rally in Bonds.

At the moment, Bond prices are pressing against both the 50 and 200-day Moving Averages and these levels may serve as a ceiling of resistance. Much will depend on the direction of Stocks, as well as the appetite for the aforementioned Treasury auction. Should Bond prices bust above this ceiling, it will be a bullish sign - however, there is a Falling Trendline viewable on the Bond Page that will be another hurdle for Bonds to overcome.

In the event that prices are pushed back below the ceiling of resistance, we will need to take a Locking stance, as much ground can be lost before a floor of support would be reached. We can afford to Float for now, and watch how the battle unfolds.