Safe play is to lock

The extreme volatility in the stock market the past couple of weeks shows an indecisiveness among stock investors.  After hitting all-time highs the end of last week, stocks have since traded in a wide range day by day.  So far this morning, the S&P 500 is down 18 points, and will soon be testing support at the 50 day moving average.  Although support will likely hold, if it does fail, the market has another 23 points or so to fall to reach the next support at the 100 DMA.  With support from a falling stock market, mortgage bonds broke above one layer of resistance and are now testing the 25 DMA.  If stocks continue to fall, that could provide the fuel mortgage bonds need to push higher and get back above each of their significant moving averages.

Initial Jobless Claims for the week ending 9/20 were reported at 293,000.  Although a very strong number, it is an increase of 12,000 from last week’s upwardly revised 281,000.  Given that last week was the sample week that will be used for September’s Bureau of Labor Statistic’s report that will be released next Friday, it could be a strong job growth number.  Should the report be stronger than market’s expectations, that will add pressure to mortgage rates.  However, given that many students left the work force is September to go back to school, the growth may be lower than many anticipate.

Mortgage bonds are performing well so far this morning.  Given the drop in the stock market, bond prices should be well supported today.  However, with mortgage bonds at the top of a channel, the risk of being pushed lower later today is high.  Tomorrow is an extremely important day for the mortgage market, as we get an updated report of the current year’s GDP.  If the report is stronger than expected, rates will step higher.  However, if the report is weaker than expectations, mortgage bonds will likely get the boost needed to push them above resistance.  With the extreme volatility in the market, and considering that we are at the top of a channel, the safe play will be to lock.  If you choose to float, watch the markets closely and be ready to make a move if the GDP report exceeds expectations.