This week has things getting back to normal in my life, though still hectic, but I am used to that anyway. As for the mortgage market, things have turned ugly as I warned last week, and while there will need to be a corrective period, or brief floating opportunity, the long haul has turned for the worse.
I said last week would be all about the Treasury Auctions’ results and that is exactly what it was all about. Those auctions, which had been doing very well, turned weaker this week and traders didn’t like that one bit. As a result, Treasuries sold off and that spilled over into mortgage backed securities. We now have some negative signs for the future, meaning higher mortgage rates are all but guaranteed now. Retail Sales didn’t help by beating expectations either, nor did the fact Consumer Sentiment is increasing
This week will start off light again, with just the short-term Treasury Auctions, which will be interesting to see if they still have strong demand after last week. This week, however, will have plenty of market moving opportunities, so expect a bump higher in MBS prices, followed by another leg lower, maybe all this week, but I am not optimistic we can stop the new downtrend. Here is the current schedule for the week…
- Monday: 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
- Tuesday: Producer Price Index (PPI – 8:30), Empire State Manufacturing Survey (8:30), Industrial Production (9:15), 4-week T-Bill Auction (11:30), 52-week T-Bill Auction (11:30), Housing Market Index (1:00)
- Wednesday: MBA Purchase Applications (7:00), Consumer Price Index (CPI – 8:30), Housing Starts (8:30), Crude Inventories (10:30), FOMC Meeting Announcement (2:15)
- Thursday: Jobless Claims (8:30), Leading Economic Indicators (LEI – 8:30), Philadelphia Fed Survey (10:00), Money Supply (4:30)
- Friday: No data, Quadruple Witching
As you can see, things move back to data and news versus Treasury Auctions this week. The main day will be Wednesday, followed by another big data play on Thursday. It will be interesting to see if MBS prices can break their downtrend, but I would bet against it at this point, though a huge news event could trigger a major market swing.
Looking at the charts, we can see almost nothing but negativity. Just like the inverted head and shoulders pattern which began the last move higher, we now have a head and shoulders pattern which indicates we are heading lower. The 10-day MA has moved lower than the 25-day MA and is targeting the 50-day MA now. MBS prices are below the 50-day, though a retracement will likely bring them back above this level, maybe even back up to the falling 10-day MA. Stochastic indications show the only light, but it is a rather dim one. Stochastics are moving into the oversold range on the longer term, but still have room to fall. Another dim light is the 100-day MA which passed above the 200-day MA, but that will not likely last long the way the rest of the picture looks.
The bottom line this week, expect a swing higher in MBS prices (lower mortgage rates), followed by the resumption of a new leg in the downtrend. Also, as the Fed makes its announcement on Wednesday, remember not to worry about their decision on rates so much and focus on their Policy Statement.
Have a good week!!!
Thanks for the info Robert. I appreciate the quick to the point analysis.
Roy Paeth
Chicago First Time Home Buyer
Finally a site i can go to where somebody knows what they are talking about.
Thank you Robert.
South Carolina Mortgages
You both are quite welcome as I enjoy writing this each week and appreciate the feedback.
I'm not seeing this! Rates have been higher all week!
The market is a little schitzo mid week. Down 9, then up 9.. all by 7:30. If you don't have good insight like you provide here, it could be extremely stressful…
Nice post here. It does make senses, appreciate for sharing.
I am getting ready to write this week's update, so expect it in a little while, but I wanted to address the comments added.
Once again, I appreciate all of the feedback.
@Drooka – Hopefully you saw what I was talking about as the week played out. We did see a move higher in MBS prices, to about the 50% retracement level, which I like to see, then another move lower, piercing the 50-day MA.
@Paul – You are right. If one look sonly at the daily moves, there is a lot of stress. Just look at how many times MMG has put out a daily update, then turned around and had to do a re-price alert, sometimes within a half hour. I always look at the daily for signs of trend change, but watch and analyze the trends and not focus strictly on the daily.
Yeah looking only at the daily can cause a great deal of stress. Thanks for the great post.