Stocks So Far Losing Battle

The 200 day moving average held stocks back from continuing their gains, which is great news for mortgage bonds. As long as this critical ceiling of resistance holds for the stock market, mortgage bonds should see improvements in the near term. However, stocks remain close to this level, which means they aren’t yet ready to claim defeat. We could see stocks make another run in the next couple of days to once again challenge this level. Unless we see a massive downward run in stocks, mortgage interest rates remain at risk.

The recent gains in the US stock market have widely been attributed to hopes of a trade deal between the US and China. Since this rally has been based on rumor, my thought is that we may see a sell off in the stock market when an actual deal is announced. Stock markets often trade based on what is expected, then reconsider their positions after the changes are formally announced. This is where the term, “Buy the rumor, sell the fact” comes into play. If this happens, it could provide the much needed boost the bond market needs to push mortgage interest rates even lower. I see good things ahead in the mortgage market.

With stocks remaining in risky territory, we will maintain our locking bias.

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