Wise Bias is to Lock

After bouncing off the 200-day moving average in late day trading yesterday, mortgage bonds crashed through this critical level at the opening this morning. The driver was an announcement late yesterday evening that the Republican Senate has passed a $4 Trillion budget that will now pave the way for President Trump’s tax plan to continue to progress forward.  This news caused U.S. stocks to climb into new record high levels, which consequently sucked money out of the bond market.  Unless bonds can quickly regain their footing, this move will set the stage for higher mortgage interest rates in the future. Further, since the 200-day moving average is considered a trend changer, this will put us back on the same course we experienced a year ago when interest rates trended higher for about six months.  Not good news for potential homebuyers at all.

With the big news behind us, we are now in a position where the technical picture will set the stage for the day. Unless stocks slow their climb, bonds will have a difficult time getting back above their 200 DMA.  With stock holders still showing signs of irrational exuberance, hoping for a slowdown isn’t a likely success plan.

With the 200-day moving average now acting as a ceiling of resistance, we are now considered to be at the top of a channel. Given the rule, the wise bias is for locking.