30 Sep No significant reason to float
High volatility continues to dominate the markets, with the stock and bond markets seeing money transferred from one to the other depending on the day. Overall, the high volatility has been better to the bond market. Although some days are great for stocks, the trend has still been for lower lows and lower highs. If the downward channel continues for stocks, they will likely find strong support at the 100 day moving average. Since stocks have only experienced brief points where they have fallen below this level in the past two years, it can be assumed that it will continue to provide support. However, if a break below does happen, the fall could be dramatic.
Consumer confidence was reported this morning at 86.0. This was far below the 92.5 expected, and even further below last month’s 93.4. A drop of this magnitude shouldn’t be overlooked, as it is ultimately consumers who have the power to push economic growth. When consumers lose confidence in the overall economic conditions of our country, they tend to decrease spending. Further, business owners tend to forgo hiring new employees, as their faith in the future does not support the need for additional help.
Mortgage bonds are again trapped beneath resistance at the 50 and 100 day moving averages. However, bonds were on an unsustainable path higher, so a break in the move up is healthy. It will be nice if bonds can hold a sideways channel for a couple days before trying to make another move higher. Once strength is built at this level, bonds will have a better chance of making a decisive move higher. If they continued to move above resistance they would have broken above this steep upward channel, which would lack the support needed to sustain. With Friday’s BLS Job’s Report release, that could be the catalyst needed to push bonds prices higher. For now, we see no significant reason to float. The risk of the next couple days will be higher than normal. We need to build some support before we will see a decisive move higher.