Sideways trading pattern

As we expected yesterday, mortgage bonds have fallen to the next layer of support after breaking beneath the 50 day moving average.  In early trading this morning, they breached another level of support, but has since recovered their losses, for now.  The stock market is again pushing higher today, which will continue to be a drag on the bond market as long as it is moving up.

Retail Sales were reported this morning up 0.2%.  This was below estimates of 0.6%.  However, last month’s initial reading of 0.3% was revised higher up to 0.5%, which is offsetting some of the weakness of this month’s report.  Retail Sales less autos and gas was actually up 0.4%.

The Empire State MFG survey for July was released at 25.6.  This was significantly higher than expectations of 17.8 and also higher than last month’s 19.28.  The strength in this report offset the benefit to the bond market of having a disappointing Retail Sales figure, and quickly pressured mortgage bonds lower after the release.

Mortgage bonds are likely to break below support once again today.  Therefore, we are going to suggest a locking bias.  We are now in sideways trading pattern, meaning we will likely see relatively small gains at best until we make a move that breaks above resistance.  We will hold a locking bias until this happens.