Bonds Break Beneath their 200 Day Moving Average

Yesterday’s negative technical indicators were accurate, with mortgage bonds now beneath their 200 -day moving average once again. This is not a great position for bonds.  We can either expect bonds to improve and regain their position above this level in a short amount of time, or bonds will likely make a more dramatic fall.  History shows that one of the two moves is likely.  Hopefully it will be the former.

Stocks suffered yesterday, as the Senate announced their own version of tax reform. Although there are many points where the Senate and House agree, one key difference is the rate at which “pass through” income is taxed.  Since this is a significant point for small business owners, many investors are showing their displeasure by selling stocks.  The Senate’s plan also goes against several key points that are important to President Trump.  The battle over the key differences will soon be heating up.

Although we are hopeful that bonds will stabilize, being below the 200-day moving average is not a good place to be. We will maintain our locking bias.