25 Jul Technical Trading Continues
Mortgage bonds are trading within the technical range and behavior we anticipated. This time however, bonds are traveling down towards the bottom of the trading channel. This comes after bonds hit the top of the channel in early morning trading and then got pushed back lower. The move lower was so strong that bonds have touched both the top of the range and the bottom of the range all within a number of hours. If the 25-day moving average holds, we can expect to see rates maintain the same range they have traded within for several weeks. I expect that next week’s Fed announcement will be the catalyst to either push rates lower or drive them higher, depending upon whether the Fed announces a ¼% cut or ½%.
Durable Goods Orders came in exceptionally strong this morning, which is part of the reason bond prices fell hard. It is also being attributed to the stock market falling. It’s a strange market when strong economic news drives stock prices lower. However, that is because good economic news could cause the Fed to cut only ¼%, which is not good news for stock investors. They would like to see the Fed provide more stimulus to help support the US economy even more. After the big hype the Fed made over cutting rates, both the stock and bond markets could fall if a ¼% rate cut is announced. I think the Fed is now in a pickle, where they will be forced to make a ½% cut regardless of if they believe it is the right thing to do or not.
With the trading range being tight, and very little hope of a breakout to the upside before the Fed announcement next week, a locking bias remains prudent for loans needing to close in the near term.