06 Oct Locking bias on short term transactions
Mortgage bonds broke below the upward channel that carried mortgage bonds above their 200 day moving average. This negative technical signal could lead to a further pull back in the bond market, especially if the stock market is able to muster the strength to rally again this afternoon. However, with the 200 DMA not too far beneath current levels, we could see this support hold bonds and keep them trading in a sideways pattern. So far today, the stock market hasn’t been much of a threat to the bond market, with the S&P 500 now down 12 points. Many experts (including legendary bond trader Bill Gross) are anticipating stocks to suffer additional losses. That would help support bond prices and could improve mortgage interest rates.
Sentiment in the US Economy continues to grow negative as we move into the cold winter months. GDP and other indicators are pointing towards slower economic growth in the near term, with a global slowdown becoming an increasingly greater concern. At this point, most economists aren’t predicting the slowdown to become recession level. However, the threat of such occurrence shouldn’t be ignored. It seems that there is often an unexpected event that growth speculators can point to in their justification for being on the wrong side when a major slow down happens. A Fed rate hike could lead to slower growth and a continued fall in the stock market.
With mortgage bonds stuck between overhead resistance not too far above current levels and the 200 DMA, we will maintain our locking bias on near term closings.