Mortgage Market Recap for the Week Ending 11/21/08

Fannie Mae Mortgage Backed Securities rode the 10 day moving average on Monday back onto the 200 day moving average - which held for the balance of the week.  Good news in that there was no new structural failure (the 200 day held).

But there’s a showdown on the way …

Look at the candlestick charts below. The first shows a 6 month view - the second a one month view (easier to see what happened this week - and last).

The 6 month view is instructive for seeing the larger trends at work. Look at the downward trend line overhead - and the 200 day moving average. They’re converging very soon - and the big question is: which line is stronger?

I’m rooting for the 200 day to win - and I think there may be good support for this outcome. A 200 day moving average win would mean stable mortgage rates - with a strong likelihood for improving mortgage rates (provided the 200 day holds).

Most in the mortgage world looks at the 10-year Note to tell them what’s happening in mortgage rates. As I’ve commented before - this is wrong (mortgage backed securities are the exclusive benchmark for how fixed rate mortgages are priced).  Still, they’re two different examples of the same animal - they’re both bonds, and both should benefit (provided there’s equal confidence) from a flight to quality. This week mortgage bonds didn’t benefit from he flight to quality. Neither were they affected when the money flowed the other way.

With all the talk about deflation, it’s possible mortgage bonds are simply late to the party - and if I’m right, mortgage rates will improve.

If I’m wrong I’m probably very wrong. The overhead trend line downwards (meaning higher mortgage rates) looks to be very strong and since its inception, it hasn’t been broken (pierced, but not broken). And the 200 day moving average is a significant technical line of support, that once broken, tends to (especially lately) result in fairly significant and quick moves lower.

I’ve tended to keep my daily updates to twitter - you can follow them on my blog - I’ve got a twitter feed - or at www.twitter.com/ken_stone

Thanks for reading!

I’ll post back soon,

Ken