Stocks have not only broken above their 200-day moving average, they have made a dramatic leap above this critical level. We’ve anticipated this move since stocks made their first multi-week break beneath their 200 DMA for the first time in several years. We will now have to wait and see if the run higher in stocks pushes prices up to once again challenge new all-time high levels. Given the traditional patterns of the stock market, stocks should run up to at least their 100-day moving average before hitting significant resistance. A break above that level will likely trigger a rally that could set fresh all-time highs.
Mortgage bonds are also performing well today, which goes against the traditional pattern of stocks and bonds performing in opposition of each other. The challenge for the bond market will be whether it is able to break out of the downward trading channel that has been in place for roughly the past two weeks. I think the strength of the stock market will end up taking a toll on the bond market, so my hopes of making a decisive break out of this downward trading channel aren’t very strong. I suspect bonds will face a strong ceiling and bounce lower in the near term. This would cause upward pressure on mortgage interest rates. Hopefully, I’ll be proven wrong.
Given the ceiling of resistance just above current levels, I feel a locking bias is prudent.