In another perfect technical example, stocks hit the floor of support in late day trading yesterday and bounced significantly higher in early morning trading today. However, as we have seen a few times in recent weeks, this rally could be short lived. The key to notice is that each time this happens, the highs become lower and the lows also become lower. This is a clear sign of trouble for the stock market, which is truly long overdue for a significant correction. My guess is that we will see this rally stall quickly and then see stocks test the floor once more. However, this time, I feel we could see a break through happen. That could align with the timing of tomorrow’s Fed announcement on interest rates and the overall state of the US economy. A bearish tone could cause investors to panic, as they should.
With more than 72% of Trump supporters polled saying that they believe President Trump has not been truthful about Robert Mueller’s investigation into Russian interference in the 2016 election, it seems likely that some investors will lose faith in the President’s ability to positively impact the markets going forward. When you consider that just 12 short months ago, the markets were cheering the tax reform bill and continuing to see glory days in the stock market well into 2020. As we round the corner and end 2018, it is truly shocking to know that the stock market is negative for the year. Very few economists would have seen that coming. As we head into 2019, we should take a lesson from ex-Fed Chairman Alan Greenspan, who recently said that he believes the market cycle has peaked. Now is a time to be cautious.
Mortgage bonds hit up against their 200-day moving average and have since backed down. If bonds can break above this critical level, we could see a nice improvement to mortgage interest rates. Since breakthroughs are the exception and not the rule, the safe play remains to lock. If you’d like to take a bit of a chance and wait and see, do so only if you are able to closely monitor the markets. Be prepared to lock.