Stocks Approaching a Ceiling

Stocks are shooting higher in early morning trading. However, they are now approaching a ceiling of resistance that will likely slow the pace of the move higher. Chances are we will see stocks fall when this level is reached, as many traders will have auto-sell triggers at this point. Investors will then need to return-assets to the market and decide what direction to take stocks from here. The general move would be for stocks to head back down to the bottom of the trading channel. However, we will have to see. If this move is truly based on optimism, stocks will push higher. My bet is that this is nothing more than a technical move higher and that stocks will soon head lower.

Today we received an update on the Fed’s favorite measure of inflation via the Personal Consumption Expenditures (PCE) report. Fortunately for mortgage interest rates, it continues to show a low level of inflation. With inflation levels well below the Fed’s target rate, the Fed can continue to drive short term interest rates down.

In other news, consumer spending is far outpacing the growth of consumer incomes. This has been fueled by a rush of cash out refinances lately and does not bode well for the strength of the longer term economy.

With mortgage bonds still trapped in a tight trading range, there is little risk to floating or benefit to locking. In this environment, locking is the safe play in the short term. However, I still see lower rates in the future.