"Neither snow nor rain nor heat nor gloom of night stays these secondary guys from the swift completion of their appointed trades". Not exactly what Herodotus had in mind (500 B.C.) but for today, it will do. Markets and the weather in Dallas have allot in common. Both are wacky. Construction Spending was not the culprit as the December print was down 2.5% and off 10.3% for 2010. Everyone wants to blame the weather but when you look closely at the weakness in residential and public spending, there seems to be more to it. The Institute for Supply Management (ISM) released January figures, up 2.3 points to 60.8. The print was the strongest since May 2004 and has spooked the market, sending treasuries/mortgage backs to higher yields/worsening pricing while at the same time goosing the stock market higher. Economists were actually expecting a down tick to 58.0 but were to be fooled by strong orders and a rise in the employment index. The New York, Philly, and Chicago districts had the most traction while KC, Dallas, and Richmond showed slowing growth. The market opened weak (treasuries) as rumors about the ISM index made the rounds. Post release, we took another dip but have stabilized. Currently, the 10 year note is off 17/32's (yield 3.45%), mortgage backs off 12/32's, and stocks up 94 points on the big board. Egypt is still in play with 1 million expected to march today. That region is still in chaos yet seems to be orderly and somewhat peaceful. That however, can change at the drop of a hat. Technically, the market continues to hold support at 3.47%. A failure to pierce that level (3.49% or above) will be a good indication that we are still in a range trade. One that has merely tested the lower band and will now try to move back into the middle of the range, giving us a little better pricing. The flip side, selling which takes out the 3.49% level will put the bears back in charge and step on our pricing. Elliot Wave traders believe that is the case. Check out the chart below. Their expectations are for a fourth wave top very close to where are currently, followed by a fifth wave selloff that would take us to a yield of 3.625% - 3.68%. Be careful because if they are correct, that fifth wave lower would punish mortgage back pricing by at least 1.50 points! Stay warm.
Scott S. Eggen
Senior Vice President - Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252
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