“ I trust that you and your girls are doing well? Hope so!

“I read with interest the comments from one of your subscribers about MREITs. As you know, I have been a fan of this sector for some years. The writer appears to have taken the time to educate himself/herself on the sector and to keep up to date on the fundamentals. I have been invested in AGNC for many years and can attest to the power of compounding in the mid-teens. These instruments have become more popular with retail investors and I think that the recent action, as highlighted on the charts, shows panic/capitulation. This is where the charts are helpful, perhaps revealing more about the investors than the instrument. If our knowledge of the fundamentals is to count for anything, it should enable us to recognize opportunity. Of course, you have to have the courage to employ it and this is where I tend to let myself down. But, I think this is where we earn our 15% PA. Not all MREITs are the same and the good ones went down with the weaker ones. The chart action yesterday would indicate, I think, a Bullish Engulfing Pattern or a Key-Day Reversal, which is encouraging. I have bought into this action.

“I am a fan of AGNC and have not looked at TWO, but will do so, based on your informed subscriber's due diligence. I did, fortunately, sell ARR and NLY ahead of the crash, due to lack of confidence in them compared to my faith in AGNC, NCT and HLSS. The last one is interesting because it is a funding vehicle for OCN and employs no leverage. The yield is circa 7% PA. Unlike AGNC, the dividends for NCT and HLSS look set to rise. Our fellow investor sounds too hard on himself/herself. If my performance is anything to go by, I have swung from idiot to hubris on a number of occasions this year. The character of the market, to my thinking, is testing us to extremes. I much preferred when all I had to do was buy BHP on any dips!

“Interesting to see what has happened to CMG and AAPL since you were in SF.“

Eoin Treacy's view Thank you for your well wishes, for sharing your professional experience of the mortgage market and for your active participation at the San Francisco venue for The Chart Seminar earlier this year. Aisling and Fiona are thriving, loving school and becoming progressively more hyped up for Christmas.

The mortgage REITs market offers such high yields that they raise suspicions among investors who are accustomed to miserly pay-outs in other sectors. The challenges of swift but mostly temporary drawdowns, progressively more aggressive prepayment rates and the potential threat of rising interest rates are all potential concerns for those considering these instruments. Since most investors participate for the high yield, any threat to that pay-out will inevitably have an impact on prices.

This total return chart for AGNC shows the impact yesterday's upside key day reversal and today's follow through have had on the share's performance. A sustained move below yesterday's nadir would be required to question potential for additional upside.

At The Chart Seminar in San Francisco we discussed how overbought shares such as Apple and Chipotle Mexican Grill we becoming. You will recall that there was a certain amount of resistance to the idea that a reversion to mean was becoming increasingly likely. If there is anything that approaches a natural law in the markets it is that the more overextended something becomes relative to its trend mean, the more likely a reversion towards that mean has become.

Apple has fallen from approximately $700 to test the $500 area today. It is deeply oversold following eight consecutive weeks to the downside and there is scope for at least a relief rally from such a psychological level. It will need to hold today's low and find support above it on the next pullback in order to suggest more than temporary support.

Chipotle Mexican Grill remains in a medium-term downtrend but has stabilised near $250. It will need to continue to hold above that area if potential for a further relief rally is remain credible.