25 Aug Locking Bias
The S&P 500 is currently trading above the 2000 mark for the first time in history. This is a significant accomplishment, and a strong psychological barrier for the stock market to overcome. A decisive break above this level would be very bullish for the short term trending higher of stocks, and will continue to add pressure to any pending correction that is long overdue. Remember, we are now well over 1,000 days since we have seen a moderate correction in the stock market. Periodic corrections are healthy in a run higher, and can add strength to future moves up in the market. Run-ups as we have seen can lead to greater losses when corrections happen.
New Home Sales for the month of July were released this morning, and the number was more disappointing than expected. It is important to note that this number represents signed contracts for the month, not closings. While the market was expecting 430k units, the final came in at 412k units. This represents a drop of 2.4% from the mast months figure. However, this is a volatile number and can change quickly from one month to the next. Since New Home Sales are a relatively small portion of the overall housing market, it isn’t necessarily an indication of problems in the housing market.
Mortgage bonds are currently near the flat line, and will be heavily influenced by the direction of the stock market. With stocks pushing unreasonably higher, mortgage bonds will likely see minimal gains or even losses as the day progresses. We are going to maintain our locking bias. The stock market may get spooked at these lofty levels, and investors may decide to pull some profits off the table. Watch closely to see where the stock market heads from here, as interest rates will likely follow the same direction.