20 Jul Safe play is to lock in here
The weakness showing in yesterday morning’s stock market charts turned out to be a head-fake, as stocks regained their footing as the day moved on. The DOW set a new all-time record high close yesterday, and multiple indexes are currently sitting at new all-time highs again today. One key tool used to help predict the near term direction of the stock market is the Investors Intelligence report that measures the number of people who believed the stock market will continue to move higher vs. those who believe it will soon fall. The measure of Bulls rose to 54.4, which is the highest it has been since April 2015. History shows that when too many people believe the market is going to go up is actually when it falls. We will have to wait and see if history repeats itself once more.
Mortgage bond prices fell lower and are once again hugging the floor of support. Although there are two floors beneath current levels, there is still a reasonable risk that bonds could make a break lower. That would further increase the APR of mortgage interest rates, as the markets would likely make a sharp move if support does not hold. If the US stock market continues to climb higher, this could provide the headwind to force bonds beneath support. Overall, the sentiment is not favorable for mortgage interest rates at the moment.
Given the risk of a break beneath support, the safe play will be to lock. If you choose to float, be careful. Watch the markets closely and lock in should the break lower occur.