Mortgage Bond Market Analysis - I Was Wondering When This Would Happen

It finally happened.  After a big run-up over the last 7 days for the FNMA 3.5 bond, the benchmark shifted to the FNMA 3.0 (for conventional loans).  With some weaker-than-expected data this morning, the new benchmark bond is up strong in early morning trading.  It is currently 11 basis points of its high and is currently 7 basis points below the 2nd level of resistance (102.50) at 102.43 but is still up 36 basis points on the morning.  The RSI (Relative Strength Indicator) is now showing that the bond is overbought and with another big move up today, my guess is that traders / investors are going to be looking for any hint of economic news that surprises to the good side to take some profits off the table - and they may not wait for that.

The FNMA 3.00 is up 198 basis points since it's opening price on Christmas eve - that's about .5% in rate (theoretically) which is HUGE.  As to what's driving it this morning, the ISM non-manufacturing index came in much weaker than expected (58.5) at 56.2 vs. last month's reading of 59.3.  Any reading over 50 is still expansionary and means the economy is growing.  Factory Orders also disappointed with a reading of -.7 which was below expectations of -.4 and identical to last month's reading.  Here's this morning's chart:

  
Where do we go from here?  That's always anybody's guess.  Statistics show that the first two trading days in January are the best indicator for what the stock market will do the rest of the year.  When the market has closed higher after the first two days of the year it has finished the year up 95% of the time with an average gain of 10+%.  When it's lower after the first two trading days, as in this case, it has only finished the year up 51% of the time with an average gain of under 3%.  Many analysts and experts are calling for a 10-15% correction sometime this year while some are forecasting a bear market.  Some say that certain indicators show it has either just begun or will soon.  What this means for the bond market is potentially higher prices and even lower rates since most investors will park the money they had in equities in the safe haven of bonds.  This is all very fluid and speculative so it's very important to keep a sharp eye on the charts.  Rates are fantastic right now and whether you locked yesterday or waited till today or will wait until tomorrow, you are going to have an excellent rate.

Economic Calendar:  On the docket for tomorrow we have the ADP Private Payroll Change with expectations of 225 vs. previous of 208.  The Trade Balance numbers are expected to come in at -41.8 vs. previous of -43.4.  Finally at around 11:00 tomorrow morning we will get the FOMC minutes from last month's meeting.  Thursday and Friday have some big data points so look for the updated schedule tomorrow.  A last look at the benchmark bond before I sign off shows it at 102.35, up 28 basis points and 19 basis points off its high.  Please feel free to contact me if I can help you in any way with a mortgage - 702-812-1214.  I'd also love to get your thoughts in the comments section.  Please like, share and subscribe and like The Wunderli Team facebook page so that you don't miss out on any intraday updates as well as updates regarding new mortgage programs and other related news.  Make today GREAT!!