Stocks are sharply lower this morning, amid a report that the Senate plans to delay the tax reform bill until 2019. This news has many investors pulling out of stocks as a gut reaction. However, since history shows that stock drops tend to be temporary, this will likely not lead to a larger downfall.
Later today, markets will have to deal with a 30-year bond auction. This is certainly a potential market mover, so we need to be on guard if the results show weak demand. Yesterday’s 10 Year Note auction created very little reaction in the bond market. Hopefully results will be stronger for the 30-year than they were for the 10-year.
Mortgage bonds are now beneath the 100 Day Moving Average, so that will now serve as a ceiling of resistance. Yesterday’s chart shows signs of a Bearish Engulfing Pattern, which is generally a sign of higher rates in the near term. As a result, we will maintain our locking bias.