Locking bias

Mortgage bonds are falling once more, as the DOW Jones Industrial Average crossed the mighty 20,000 level in early trading this morning.  The US stock market continues to celebrate the election of President Donald Trump, with the DOW now up approximately 1,700 points since the results of the election were announced.  It is unknown at this point just how long the exuberance in the stock market will last.  The past has shown that stocks often face challenge when passing significant milestones.  For example, shortly after hitting the 10,000 level, stocks pulled back sharply and took another 9 years to break above this level once more. 

Mortgage bonds have now convincingly broken beneath a critical support level, and seem destined to continue to fall.  Bonds are now being held up by a level of support provided by lows of last week.  If that level breaks, bonds have another 60 basis points to fall beneath present levels.  This would be the likely outcome if stocks continue to climb higher.  However, if they are unable to hold above the 20,000 level, we could see bonds be the beneficiary in late day trading.  At this point, however, stocks are not showing any signs of slowing. 

With mortgage bonds clearly getting hammered, we will suggest a locking bias.