Trading in a sideways pattern

The “Head and Shoulders” pattern in the stock charts that we mentioned yesterday played out this morning.  The downward pressure in the stock market has helped support mortgage bond prices, which are now trading in a sideways pattern.  Althoughmortgage bonds’ gains have been limited, the significant event is that bonds were able to break from their downward trend.  This will give bonds a little time before deciding if they will make a move higher or break beneath current support.

Consumer Sentiment was reported to be 84.1.  This was higher than expectations of 82.5 and stronger than last month’s 82.6.  This is an encouraging sign as we move into the summer months, and further evidence that our economic conditions are improving.  As our economy heats up, so will the pressure for higher interest rates.

With mortgage bonds now in a sideways pattern, there is no immediate need to lock.  As long as we stay in this channel, we will suggest locking at the top and floating at the bottom to take advantage of any gains.  However, a tight channel will offer minimal potential gains.  For many, the downward risk may be greater than any potential gain from floating.