Stock market indexes hit their 200 day moving average once again yesterday and quickly bounced higher. Since stock prices have not been beneath this critical moving average in years, the bounce was of course anticipated. There are certainly large number of buy orders automatically triggered that allow stock investors to profit from the highly probable bounce off a strong support level. Once again this theory was proven to be true.
Regardless of the strength in the stock market, mortgage bond prices are holding their ground and remain above their 25 day moving average. With the 50 DMA now just above current levels, investors are anxiously waiting to see if bonds will have the strength to break above this level. With history being the greatest predictor of future behavior, a break above this is unlikely, but not impossible. If bonds do break above, it will trigger a stronger rally in the bond market that will help improve mortgage interest rates. At this point, we should plan for the worse but hope for the best.
Economic news of the morning was strong, but overall near what the market anticipated. As a result, bond prices are hanging in there. We are seeing consumer inflation levels continue to climb higher, the employment market remain strong, and leading economic indicators continue to point towards an overall strong U.S. economy. This could lead to an eventual rally in the stock market. For example, my personal financial planner suggested I become more aggressive. However, I feel the risk of a significant drop is nearly as likely as a massive climb. Although it may be the wrong decision to make, I may sit this one out.
The last time bond prices were at this level, it was immediately followed by a 100 + point drop in bond prices. As a result, we will maintain our locking bias.