Play it safe and lock

Play it safe and lock

The stock market continues to try to mount a comeback, although each of its recent attempts have been met with defeat.  Just when it looks like stocks can muster the strength to make a run higher, they are pushed back down.  One good sign for the near term direction of stocks is that they are now trading in a sideways pattern and have broken out of the downward channel that drove the market lower since the end of December.  It is not out of character for the market to make a strong run to get back to where it was in early December.  However, this level of volatility is not generally a signal of long term strength, so stocks would have a hard time challenging market highs obtained in 2015.

 

Mortgage bonds have performed fairly well the past couple weeks.  However, they have not had the strength to make a break above the 200 day moving average.  This is not a good sign and generally means that a large drop in the bond market is imminent.  A long term view shows that breakouts are very rare and should never be counted on until achieved.  Therefore, we can expect that current interest rates are as good as they will be in the near term.  In the rare case that a break out above the 200 DMA occurs, we will see rates improve nicely.  However, since the chances are slim of such event happening, now is a time to play safe.

 

Given the current state of the bond market, we suggest a locking bias.