20 Jul Risk of floating remains high
Today is a very quiet day for economic news, so technical factors will heavily influence the direction of both stocks and mortgage bonds. It is a big week for corporate earnings announcements, so there could be heavy swings in particular stocks as the results of businesses are released. From a technical standpoint, mortgage bonds have broken beneath support and are now battling their 25 day moving average. With the next level of support an additional 50 basis points beneath the 25 DMA, a break beneath this level will be very negative. Further, the 10 Year Treasury Note Yield has broken above its 25 DMA and has a lot of room to climb higher before it finds another ceiling. Overall, this paints a very negative technical picture that could get worse in a hurry.
US stock markets have once again reached all-time high levels. However, they are struggling to make a break even higher this morning. The past seven trading days have been very strong, accounting for nearly a 5% rate of growth within this time frame. Stocks have seemed to be caught in a rut for a couple months now, with many investors now chasing the market during times when volatility is high. The day trading type activity further enhances volatility and creates challenges in the bond market as all investors weigh their portfolio and make decisions based on the market movements as they occur. If stocks are able to maintain their upward momentum, we could see new record high closings today or later this week.
The risk of floating continues to remain very high. Therefore, we will maintain our locking bias.