Market Brief – Friday 11/09/18

Stocks headed down in early trading following strong a strong Produce Price Index report showing producer prices increased +0.6% MoM and +2.9% YoY. Probabilities of a December 2018 Fed rate hike are now at 80% and will likely rise going into December. The tighter monetary policy is, the worse it is for asset prices.

Peter Navarro, one of President Trump’s key China advisors, said this morning there wasn’t any prospect of a deal with China at this time. Stocks didn’t like this news either, as it indicates the meeting between President’s Trump and Xi will not lead to any breakthroughs.

Oil continues to fall on supply concerns and is now officially in a Bear market, which is anytime a security falls -20% from its peak. With a lot of jobs tied to the oil industry, this is not good news. Falling oil prices will dash inflation expectations, bring the ISM factory surveys down and cause industrial production to fall. Look for bond yields to fall in response.

The latest University of Michigan Buying Conditions survey showed consumer demand for housing and vehicles falling to 2013 levels with large durable goods holding steady. This is not good news for the real estate or automobiles industries which are already experiencing a slowdown.

While the broad market was down for the day, buyers came in to defend the S&P 500 at its 200-day moving average and the DJIA at its 50-day moving average. The Nasdaq-100 and Russell 2000 both remain below their respective 200-DMAs. In a Bull market the 200-DMA is a sign of support, but October’s drop was well below what is normal in a rising market. Until the stock market makes new all-time highs, investors should be cautious about buying any dips.

After revisiting their long-term resistance level, which I will show in today’s video, Treasury yields reversed direction and moved lower. They didn’t move enough to push any of the recent short-sellers out, but the price action was constructive that a Treasury rally could start in a near future.

Physical gold fared poorly as it crashed through its 50-day moving average but found buyers just over $1,200/oz. Buyers have been hanging out between $1,180-1,200/oz, an area of price support. As expected, the gold miners fell but held their 50-DMA. Silver miners are not far off their 6-month low. Technical chartists suggested today prices are likely to head a bit lower.

Agricultural commodities fell to their 50-day moving average, which is right below their 100-DMA and held. Bull markets begin with a cross of the 50-DMA and are confirmed by prices repeatedly holding their 50-DMA. A slight dip below doesn’t change the picture much in my opinion, but it is nice to see the Bulls defending the moving averages. Based on the chart, the Bulls need to fight hard into next week to complete a symmetrical chart pattern that is likely to lead to a breakout to the upside.