25 Oct Locking bias
Mortgage bonds were unable to break above the triple ceiling of resistance created by the 25, 50 and 100 day moving averages in yesterday’s trading and were once again pushed lower as a result. As discussed yesterday, the ceiling will likely cap mortgage bonds, preventing interest rates from improving from current levels until there is a catalyst strong enough to boost bonds higher. However, it would take a significant piece of negative economic news to provide such force. One possibility will be Friday’s report on GDP. If it is shown that economic growth in the US is still near anemic levels, mortgage bonds could be given the juice to make a run higher. In the meantime, we could be stalled at current levels.
The Consumer Confidence index for the month of October was reported at only 98.6. This was well below the market’s expectations of 101.0. September’s reading was also revised lower from 104.1 to 103.5. Although still strong, the move lower could be the beginning of a winter season trend that often follows the strong economic summer months. It could also be influenced by the coming elections. Even under continued Democratic control, the shift in personnel and individual agenda could shift business in one direction or the other. That causes some to have concern over the future of their current industry.
With mortgage bonds still beneath a triple ceiling of resistance, we will maintain our locking bias.