Stocks Likely to Bounce After Hitting 200 Day Moving Average

Stocks are all over the board this morning. After climbing in early morning trading, they have since fallen all the way down to their 200-day moving average. This also aligns with the bottom of the steep downward trend stock charts have formed. I would expect to see stocks gain steam at this critical juncture and climb towards the top of the trading range. That would be a normal move, even if stocks maintain their downward trajectory over time. 

The stock market has many panicked. After yesterday’s strong losses, the stock market is clearly in corrective mode. This very long overdue move comes at a critical time for mortgage bonds. Since bond prices are also falling and in a strong downward channel, it seems any improvements to mortgage rates are temporary. It won’t be until bonds are able to break out of the downward channel that we can expect to see significant improvements. If stocks continue to fall, that will eventually help mortgage rates improve. There must first be a floor established for the bond market. I feel that will be discovered soon. We will have to wait and see if I’m right. 

Next week is a critical week for bonds, as we will learn about the pace of consumer inflation. It seems the market is betting on higher levels of inflation heading our way. Although I do see inflation ticking higher, I’m not one who believes inflation or interest rates for that matter will move too high.  There has been far too much optimism in the markets and in the US economy. Generally, that is a sign of a slowdown coming. Slower growth would help soften both interest rates and inflation. 

With limited gains likely in the bond market, we will maintain our locking bias. Let’s hope bonds break out of this channel soon.