The negative pattern identified in Friday’s market update appears to have been accurate as mortgage bonds are down sharply. The short-term memory of stock investors is once again proving true, as stocks are now making a run towards setting new all-time highs. This comes as both Texas and Florida are assessing the damage from hurricanes that devastated thousands of homes, businesses and communities. The amount of damage caused will prove to be near the top of natural disasters in our nation’s history. However, stock investors don’t seem to be concerned. Once again, showing a level of ignorance and irrational exuberance that is hard to fathom.
Mortgage bonds have now broken beneath the trend line and are now heading towards the 25-day moving average where they will hopefully find support. However, if this level does not hold, they have a bit to go to until they hit the 50 DMA. Either way, we are in for a bit of an increase in the price of mortgage loans at least in the near term.
Given the continued weakness, we will maintain our locking bias.