Market Analysis

I think today's commentary from Larry Baer with Market Alert is very insightful.  I am pasting it below:

Daily Commentary

By Larry Baer, Market Alert

Reminder: The mortgage market will close early at 2:00 p.m. ET on Friday, May 23^rd and will remain closed on Monday, May 26^th for the Memorial Day Holiday.

SHORT-TERM TREND (20 days or less) Favors higher note rates and lower investor prices.

SUGGESTED PIPELINE STRATEGY: Avoid initiating new "floating" loans in this category until/unless the price of the Fannie Mae 5.5% 30-year mortgage-backed security can muster the momentum to close above a price of 100.593.

LONG-TERM TREND (21 days or more) Favors higher note rates and lower investor prices.

SUGGESTED PIPELINE STRATEGY: Avoid initiating new "floating" loans in this category until/unless the price of the Fannie Mae 5.5% 30-year mortgage-backed security can muster the momentum to close above a price of 100.593.

Commentary: The number of workers filing first-time jobless benefit claims unexpectedly fell 9,000 last week -- while the overall number of workers on the benefit rolls held near a four-year high. The figures indicate companies are reluctant to fire more workers even as the economy struggles to eke out a minuscule growth rate. It appears businesses are choosing to cut back on hiring new workers rather than letting existing staff go. Mortgage investors responded aggressively to this better-than-expected news from the labor sector, pushing note rates higher and prices sharply lower.

I'm a bit surprised by the nervous investor reaction to today's weekly jobless claims data. Even though the earlier report from the labor sector suggests more strength than had been expected, this morning Ford and American Airlines announced sizable employee furloughs following the Memorial Day Holiday and through the balance of the summer. There is little doubt other major employers will follow. Against this backdrop, the probabilities are high that jobless claims will spike sharply upward in June and through the balance of the third quarter. My bet is that experienced investors are keenly aware of these facts - and that the heavy sell-off in the mortgage market has nothing to do with a 9,000 drop in a weekly jobs number.

In my judgment, it is far more likely the heavy selling pressure in the fixed-income markets this morning is a direct result of fixed-income investors suddenly noticing that the door of the cage is standing wide open - and the inflation beast has escaped -- set free by the corrosive power of daily new all-time record highs for the price of energy.

Expect considerable market volatility Friday and Tuesday. The few traders that choose to remain at their desks though the early market close for the Memorial Day Holiday -- are not likely going to be aggressive buyers of bonds and mortgage-backed securities. Thin trading conditions almost always exaggerate price movement.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME