26 Oct Locking bias
Over the past couple of days, mortgage bonds have been pushed beneath the upward channel they were in and have since stalled out beneath resistance created by the 25, 50 and 100 day moving averages. Since breaking out of the channel, they appear to be in the early stages of a downward trading channel formation. A downward channel is defined by days of lower highs and lower lows. We have experienced this over the past three trading days. There’s no way to say at this point where this will lead. Much of the answer to this will be decided after Friday when we receive the current read on GDP. If it shows economic strength continuing to build, bonds will certainly suffer. However, if it shows weakness developing and growth slowing, bonds could muster the strength to make a run above the triple layer ceiling above.
The Mortgage Bankers Association released its estimate for new mortgage applications for last week. Since this is a forward indicator of the housing market, it’s of relevance to both the mortgage bond market as well as potential home buyers and sellers. It was reported that applications for new purchases fell by 7% to their lowest level since January. However, purchases are still up 9% on a year over year basis. Further, we are coming off the strong purchase season of summer. Therefore, a drop was highly anticipated.
With mortgage bonds continuing to show lackluster strength, we will maintain our locking bias.