Mortgage Market Guide:

And once again the technical signals have proven to be accurate. The value of understanding the early technical warnings is perhaps even more important than the alerts themselves that follow the market's movement.

A big story this morning is Oil prices, which are dropping sharply in the aftermath of a Hurricane Gustav's visit to the Gulf of Mexico. The storm was milder than expected and spared the energy facilities in that area. We are seeing Oil trade at just over $106 a barrel and for the moment, Oil prices have broken beneath their 200-day Moving Average. We know how significant an event it is when Mortgage Bonds break above or fall below its 200-day MA, so we are watching this closely. Take a look at the chart below, you can see this is the first time in over a year that prices have fallen below this important floor. If prices are unable to recover and break back above the 200-day MA, presently at $111.39 a barrel, we will likely see Oil test the next clear level of support at $100. Stocks are rallying hard on the drop in Oil, thereby taking money from Bonds. It is important to note that although Bonds are reacting negatively to the money flowing into stocks today, if oil can remain at lower levels, Bonds will eventually respond well to this as a drop in Oil prices will help inflation.