Bom dia, estou em Brasil hoje escrevendo esse poste.  OK, my Portuguese is still a little rough, but it says “Good day, I am in Brazil today writing this post”.  This post marks my 104th weekly update, which means I have been doing this now for two years straight.  Man, how time flies, so let’s get into what happened last week.

Last week saw mortgage backed securities struggling and ultimately edging lower, sending mortgage rates higher.  The retracement I discussed has not formed solidly yet, and there remain some concerns for the future despite the negative outlook on housing that presented itself, along with Big Ben’s desire to keep rates low since as he admitted not knowing how the economic recovery was going to happen.  There was another week that saw purchase applications drop and this time we saw the effects carry over into the housing reports as the housing market showed its weakness.  News on the remainder of the economy remains mixed as we saw Retail Sales come in weak, but the Philly Fed was better than expected.  Overall, mortgage rates tried to hold there ground but just couldn’t.

This week will hit the likely hit mortgage bonds hard and they will either find the strength they need, or get beaten down tremendously, providing that retracement or worse.  I lean towards the latter as I will get into, but let’s look at the scheduled events, which include the Fed’s favorite gauge of inflation, the PCE report.

• Monday:  Existing Home Sales (10:00), 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30), 2-year T-Note Auction (1:00)
• Tuesday:  Real GDP (8:30), GDP Price Index (8:30), S&P Case-Shiller HPI (9:00), Consumer Confidence (10:00), FHFA House Price Index (10:00), 4-week T-Bill Auction (11:30), 5-year T-Note Auction (1:00), FOMC Minutes (2:00)
• Wednesday:  MBA Purchase Applications (7:00), Durable Goods Orders (8:30), Personal Consumption Expenditures (PCE – 8:30), Personal Spending (8:30), Personal Income (8:30), Jobless Claims (8:30), Consumer Sentiment (9:55), New Home Sales (10:00), Crude Inventories (10:30), 7-year T-Note Auction (1:00)
• Thursday:  Markets closed…HAPPY THANKSGIVING
• Friday:  Money Supply (4:30)

As you can see, there are some fairly big reports coming and coupling that with a shortened trading week’s increased volatility and we could see a huge move as the week unfolds.  Tuesday and Wednesday are both full of gunpowder, the question will be will it light a fire and send MBS prices higher, or blow them up.  For that answer, we can look at the charts and play the odds.

As we study the charts, things remain mostly against lower mortgage rates.  For starters, we have not gotten a genuine retracement as yet.  Add to that the fact stochastic indications remain on the overbought side.  In fact, looking at the charts, we need a drop to about the 25-day MA before we should see another leg up.  However, the long-term outlook remains favorable for mortgage backed securities to move higher after a retracement.  With the 25-day MA skipping off the 50-day MA and the 100-day moving higher and looking to attempt a positive crossover of the 200-day MA, things do not look awful surrounding the future, but that could change this week as well.

The bottom line is I am going to end this week saying almost the same thing as last week.  Watch the markets daily, but expect mortgage rates to edge higher still, at least to around the 25-day MA level, then possibly move lower again.  I remain skeptical about seeing lower mortgage rates than we just saw.

Tagged as: MBS Commentary, MBS Prices, Mortgage Market Analysis, Mortgage Rate Forecast