Markets at Critical Levels

Stock and bond markets are all at critical levels this morning. As for the stock market, the charts show they are now at the peak of a longer term downward trading channel. Although stocks have shown tremendous strength lately, they could very well stumble at this point. Pre-market trading shows that stocks are in fact pointed slightly lower. I would expect to see the momentum of losses in the stock market accelerate as the day wears on.

Bond prices are at the bottom of their support levels. A break below current levels will place mortgage interest rates at multi-year highs. Bonds experienced a gap down opening this morning, so we may see prices improve later in the day as the markets look to close the gap. We are hopeful this level will hold. If it doesn’t, we have to look at charts from years ago to see where the next support levels are at. It seems there could be support about 30 basis points beneath current levels. Let’s hope we don’t need to test this, as that would establish new territory for bonds to explore in the weeks or months to come.

The economic news of the day is not considered significant, so the movements in the markets are heavily based on the technical picture. As long as bonds don’t close beneath the current floor of support, we could see bond pricing improve in the near term. Let’s hope for the best but plan for the worst.

Although bonds should bounce higher, there is great risk in floating. We will maintain our locking bias.

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