04 Aug Locking Bias
Mortgage bonds made several attempts yesterday to break above the triple layer of support we mentioned in yesterday’s update. However, the ceilings proved too strong to penetrate; at least for now. Bonds were pushed back lower and are now continuing the drop downward. A break above these three ceilings would represent a break from a wide sideways channel that has been in place since early May. Since breakouts are the exception and not the rule, we almost always will anticipate that bonds will be pushed back lower when they attempt to make a break above a strong channel. Given the strength of the channel, it will likely take a significant event in the markets to create the strength for a breakout. Since we don’t currently have that, bonds will likely remain trapped at or below current levels until such event that provides the boost needed.
The housing market continues to shine. Today we received the Home Price Index report from CoreLogic showing that home prices rose 1.7% month over month in June. The year over year increase is now at 6.5%. This is a significant rate of growth that will likely slow a bit in the months to come. It is projected that we will see a 4.5% rate of growth from June 2015 to June 2016. Although not as strong as we have seen in recent months, it is still a great number. Further, it is a more reasonable and sustainable rate of growth. We would rather see a 4% rate of growth longer term than see a much higher rate followed by a drop.
Given that bonds remain beneath the triple layer of overhead resistance, we will continue to suggest a locking bias. Tomorrow we will receive the first of three updates on the job market, with Friday bringing the all-important report from the Bureau of Labor Statistics. We could see volatility increase as we approach the report. Be on guard and watch the markets closely if you choose to float.