Keep an eye on the stock market

Strong reports from Apple and Facebook initially added boost to this morning’s stock market opening.  However, stocks have since turned negative.  Whether or not the stock market is able to maintain their current levels remains to be seen.  There certainly are indications that the stock market is top heavy.  If a pullback occurs in stocks, it will benefit bonds and help move interest rates lower.  The stock market chart shows the formation of what is called a “Head and Shoulders” patterns.  If stocks move lower at this point, that would be very bearish for stocks.  Watch closely, as the outcome of the stock market will heavily influence the direction of mortgage bonds going forward.

Weekly Unemployment Claims for last week were released today, showing that 329,000 new claims were processed.  This is higher than the expectation of 313,000, and an increase of 24k from last week’s upwardly revised number.  Holiday weeks, such as last, will often cause a bit of an increase in claims as seasonal workers may have chosen to take an extended weekend and file for unemployment benefits.  We will have to wait for next week’s report to see if that was the case or if the trend is moving higher.  My guess is that next week will be a different story.

Durable Goods were released this morning, showing an impressive increase of 2.6%!  This was significantly better than the 2% expected, and also higher than last month’s downwardly revised 2.1%.

Mortgage bonds are between support and resistance, and trading positive at the moment.  We will suggest a cautiously floating bias to see if we can continue the gains as the day progresses.  Keep a close watch on the stock market.  Should stocks heat up, it will likely come at the expense of the bond market.  Be on the lookout and be ready to lock if that happens.