17 May Locking bias
As discussed in yesterday’s update, the stock market finally reached a point where it was unable to sustain the record levels it achieved yesterday. As a result, stocks are having a terrible day today. Financial pundits are blaming the continued troubles facing the Trump Administration as the main reason. However, since this has been an ongoing situation for several days, it seems interesting that this would cause markets to fall just one day after they reached record high levels. It could be that investors ignored this issue and finally realized it could hinder future growth. However, more than likely, investors are still blind to political risks and the stock fall was more of a technical move after hitting new record high levels yesterday.
Mortgage bond prices are now back near the highs they have been since the markets experienced their free-fall last November. In fact, we have made several attempts to break above this point since then. Unfortunately, each attempt was met with a fairly significant drop in bond pricing, which drove mortgage interest rates higher in the process. Therefore, although bonds are performing extremely well today, it will take a significant force to bonds to break above this level. Further complicating this is the 200-day moving average, which is just a hair above this strong level of support. Since breakouts above a 200 DMA average rarely happen, we can’t plan on today being the day.
With bonds at a level of extraordinary resistance, we will switch to a locking bias to take advantage of the recent pricing improvements.