Good morning to all in the financial sphere! The markets are off to a radiant start, with mortgage-backed securities (MBS) up by 16 basis points. The 10-year Treasury yield has decreased by 6, hinting at a brighter technical picture on a day devoid of significant economic news.

The Golden Cross: A Positive Signal

In the realm of technical analysis, a rare and often auspicious event known as the ‘Golden Cross’ has occurred. This is when the 50-day moving average climbs above the 200-day moving average, suggesting a potential long-term bullish trend for prices. Last week, this technical pattern was confirmed, and while prices didn’t immediately respond with an increase, historical patterns suggest this could bode well for the future.

The Counterpart: The Death Cross

On the flip side, we’re keeping a watchful eye on the 10-year yield for a ‘Death Cross,’ where the 50-day moving average would dip below the 200-day. This would be a welcome scenario for bond investors, as it typically indicates falling yields ahead.

A Week of Inflation and Economic Data Ahead

While the technical indicators offer a glimmer of optimism, the week ahead is packed with crucial economic updates that could sway the markets. The highlight will be Friday’s Personal Consumption Expenditures (PCE) report, the Fed’s preferred inflation gauge. Expectations are set for the core PCE to decrease from 3.2% to 3%. A number below expectations is ‘golden’ for MBS and yields.

Key Economic Releases on the Horizon

– The first reading of Q4 GDP and new home sales data are scheduled for Thursday, indicating a potentially delayed market update.

– An exclusive interview with Mike Fratantoni, Chief Economist for the Mortgage Bankers Association (MBA), will provide insights into the rate and housing outlook for 2024.

– Pending home sales data will also be released on Friday, rounding out a week rich with economic information.

Technical Analysis: MBS and the 10-Year Treasury

MBS is exhibiting signs of a positive stochastic crossover, another technical indicator that could forecast a rally. The last occurrence of this pattern preceded a notable increase in MBS prices. For the 10-year Treasury, we’re observing movements with similar technical tools, looking for patterns that could signal a drop in yields.

Today’s market is guided by technical analysis, offering a respite from the usual data-driven movements. As we look ahead, the convergence of technical patterns and forthcoming economic reports will dictate the market’s direction.