Stocks Set New All-Time High

Although mortgage bonds remain trapped within a tight trading channel, they found their way to the ceiling today. After spending several days hugging the floor, it’s nice to see a bit of strength showing. The hope is that bond prices will gain momentum and be able to climb above their 25-day moving average which is the current ceiling. A break above this critical level would put a stop to the slow grind higher that mortgage interest rates have experienced the past few weeks.

Stock prices set new all-time high records yesterday, which eliminates the past weakness that started about seven months ago. The concern for investors should be whether stocks have the backing to continue to climb higher. Until stocks have experienced a period above the previous all-time high level, prices are susceptible to experiencing a pull back. This would be a technical drop, not necessarily based on new-found weakness in the U.S. economy. In my opinion, stock prices are over-inflated and should come down to more reasonable levels. If that were to happen, mortgage bonds would be the beneficiary, which would help put downward pressure on mortgage interest rates. We will have to see how the next few days play out in order to better gauge the future direction.

Although there is no need to immediately rush in and lock, floating remains risky. Unless bonds can make a decisive break above the current ceiling, we will maintain a locking bias.