Be cautious in floating

Be cautious in floating

Both stocks and bonds are modestly higher this morning.  Today has very little economic news releases.  Therefore, the technical indicators will
heavily influence the direction of both stocks and bonds today.  The economic calendar heats up as the week moves on, topping off with a report
on CPI (Consumer Price Index) on Friday.  Since one of the key metrics that the Fed is watching to determine when to move rates higher is inflation,
the markets will be watching closely to see if this report is still showing inflation at anemic levels.  If inflation is hotter than anticipated,
you can expect to see a bit of panic in the market. 

 

Mortgage bonds have fallen the past few days and are now at the bottom of a channel.  They found support at the 50 and 25 day moving averages and
bounced a bit higher.  The 100 DMA is not too far beneath current levels as well.  This is adding some stability to the bond market, giving
investors hope that current prices will hold.  Being at the bottom of a channel is typically the time to float.  However, there is always
risk in doing so.  Since there is no way to predict when bonds will break beneath support or a trading channel, we often make decisions bases
on statistical averages.  Therefore, if you choose to float, do so carefully.