Bonds Continue to Battle a Tough Ceiling

A defiant President Trump came out and said his plan is to let the healthcare reform bill die.  The repeal and replace Obamacare plan desired by the President proved too big a pill for many Republican senators to swallow.  Therefore, President Trump plans to let the current system “fail” and then let the ones who didn’t support the new plan “suffer the consequences.”  Although this news should have given stock investors reason to pull back, stocks are right now at new all-time highs. This is a bit irrational, as much of the recent gains were made based on the hopes of this bill as well as a tax bill passing.  With healthcare reform no longer on the table (at least for now), the tax bill has little hope of passing as well. 

Although mortgage bonds remain in an upward channel, they have yet to been able to muster the strength to break through the multi-layered ceiling of resistance that includes the 200, 50 and 25 day moving averages.  Although a break-through is possible, it is not entirely likely to happen.  Anytime we are talking about a move above or below the 200 DMA, we must consider the significance of such a move.  Since it generally indicates a trend reversal, such a move is not likely to happen without a significant economic event stimulating the move.  With stock prices at all-time high levels, bonds will have a difficult time exceeding current levels. 

Unless mortgage bonds can make a clear break above the current ceiling, we will maintain our locking bias.