Bonds Holding as Stocks Show Strength

Stocks are once again jolting higher, with the Dow crossing 26,000. It took only eight trading days for the Dow to gain its last 1,000 points.  This is the fastest single one-thousand-point gain in the history of the stock market.

Although stocks continue to show strength, the bond market is holding up surprisingly well. So far this morning, bonds are up slightly, which is a stark contrast from what we’d generally expect under the pressure of the stock market’s strength.  It seems to be a technical move higher after hitting the bottom of the current trading channel.  With bonds losing as much ground as they have in recent weeks, it could be that they are due for an upward price correction.  We’ll have to see if they are able to sustain or if they will eventually give in as the trading day wears on.

After a head and shoulder pattern forming in last Friday’s trading pattern, bonds fortunately had a gap up opening this morning. If bonds can close above the market’s opening level, we should be in good shape for the near term.  However, keep in mind that gaps tend to close; which means we could see some volatility as the day moves on.  With this week being a light one for economic reports, the technical picture will be heavily relied upon.  So today is an important day for the near-term direction of mortgage interest rates.

With stocks continuing to climb higher, bond market gains will likely be minimal. Although there is no need to immediately lock, we will maintain our locking bias.