Mortgage bonds experienced a technical breakdown yesterday, with bond prices falling beneath their 25-day moving average. The saving grace is that prices held above another critical level that is more important than the 25 DMA. If this level holds, the next expedited move would be to see rates improve. However, bond prices will now have their 25-day moving average to fight as a ceiling of resistance. That could create some concern as investors nervously wait to see what happens. If many panic and sell, we could see prices fall beneath this support level.
China’s slowing imports have sent a bit of a shock through the world economy, as the trade war shows continued signs of concern. However, the stock market has shrugged off this news, with stock prices again hitting new intraday day record high levels. According to economists at Merrill Lynch, the stock market will continue to enjoy growth for the foreseeable future. However, Merrill Lynch economists don’t see a recession coming, which I believe is an inaccurate prediction. These are the same economists that predicted 3 rate hikes in 2019 at the beginning of the year. Well, we now can see how wrong they were. We’ll have to wait and see if their current projections are accurate or if they again miss the mark.
Given that we are now at the bottom of a trading channel, I see room for improvement. However, float only if you can closely watch the market. Be prepared to lock if bonds break down.