Mortgage bonds remain in a fierce battle over their 100-day moving average. The significance of a victory would be monumental. If this does happen, there is only once resistance level to go before hitting the 200 DMA. Since a move above or below the 200 DMA is the sign of a market reversal, it’s exciting to see bonds heading in this direction.
November’s interest rate increase was fueled primarily by “Trump Euphoria,” which is now on a downward trend. The hope of a more ‘business friendly’ president was enough to drive stock prices dramatically higher, while pushing interest rates up in the process. Now that the Repeal and Replace Obamacare bill has failed to pass, many investors are angry and losing faith in the new president’s ability to fulfill his planned agenda. This could continue to suck wealth out of the stock market and drive interest rates back down. However, it’s much too early to build hope in this prospect. Rates are still more likely to move higher in the near-term than to get back down to pre-Trump levels.
Per the Case-Shiller Home Price Index, home prices continue to move higher, improving from an annualized rate of growth of 5.8% up to 5.9%. This is the best reading in over 2.5 years, and a sign of a very strong housing market. Although many are warning of a potential housing crisis around the corner, there is no sign of an imminent drop in the near term.
Unless bonds can make a break above their 10- day moving average, we will maintain our locking bias.