11 Jan Locking bias
Bonds have had a wild ride so far this morning, but remain within the upward channel they have been traveling within. However, they are still just beneath a significant ceiling of resistance provided by the 50-day moving average. If they can break above this, they then must face the 50% retracement Fibonacci level. As we discussed in yesterday’s market update, this is the point at which we would have recovered 50% of the losses the bond market has absorbed since early in November. That is also the point at which the market could likely reverse and push bonds back down to drive mortgage rates higher. So hopefully, that doesn’t happen.
This morning’s press conference by the incoming President-Elect Donald Trump was as entertaining as past performances have been. With the primary purpose of the conference being to discuss his plans to transfer operational responsibilities to his sons, while transferring ownership into a trust to avoid conflicts, he took time to field questions from reporters. Throughout his talk, both the stock and bond markets experienced great volatility. If this is a sign of the markets’ reactions to him speaking, we could be in for a wild ride ahead. Generally speaking, the stock market does not like instability or the unknown. Therefore, this could be better for interest rates than many had originally thought…
With bonds being at the top of trading channel, the most likely outcome will be a break lower. I anticipate bonds moving off their upward channel to move in a more sideways direction. Such a move would warrant a locking bias.