Stocks Fall Hard

Mortgage bonds are now in a precarious position, after being pinched out of the converging 25 and 50 day moving averages.  Fortunately, they took a 2 basis point step above this level.  However, this really isn’t a show of strength considering that the S&P 500 is down 43 points and the Dow is down 384 points at the moment.  Usually, such losses in the stock market would translate to large gains in the bond market.  However, bond investors are clearly not optimistic enough to allow that to happen.  As a result, bonds are stagnating near the 25 and 50 day moving averages, which means they could easily break to the downside if stocks start to recover their losses.

The stock market losses are once again being attributed to the Us moving closer to a trade war.  President Trump let the world leaders know that anyone who retaliates against the tariffs the US is imposing will be met with an even greater retaliation from the US.  This is clearly a negotiating tactic that many believe he would follow through on.  The stock market isn’t happy about the continued rhetoric and is selling off as a result.  However, keep in mind that this is a highly fluid situation that has also fueled gains in the stock market during times that there appears to be softening on the subject.  Tomorrow could bring positive news.  But for now, this is what we have.

Unless bonds are able to make a decisive break above their 25 and 50 day moving averages, we will maintain a locking bias.