Market Brief – Tuesday 1/29/19

After heading lower in overnight trading, the broad equity market started the day higher as investors hope for a dovish Fed and an end to the trade war this week. The bond market is not confirming the equity market, as Treasury yields headed lower. Since stock prices tend to follow Treasury yields, the bond market is indicating the broad stock market should be headed lower, not higher.

PG&E opted to file Chapter 11 bankruptcy today rather than take a bailout from two hedge funds. With $50 billion in debt, PG&E owes more than it is worth as a corporation. The proceedings are expected to take a couple years are more, but this hasn’t deterred investors from buying PG&E stock who are hoping that California will soon bail out the company. While there hasn’t been a rate increase, PG&E customers may face large increases in their utility bills in the future.

The Conference Board’s Consumer Confidence index plunged as ‘job hopes’ saw the largest decline in 50 years. Not to be outdone, both current and future conditions also saw large declines. The Conference Board felt this decline was temporary and mostly due to the government shutdown.

After yesterday’s strong 2-year Treasury auction, I would have predicted today’s $32 billion 7-year Treasury auction would be met with equally strong demand. While foreign bidders backed off a bit by taking 58.2% of the auction, direct bidders took 24.9% of the auction, up from 14.6% in December. Treasury yields fell across the board after the auction.

Physical gold and the gold miners jumped in early trading but aren’t being confirmed by an equally large move by the silver miners. The word from Wall Street is that a dovish Fed is bullish for gold, yet the trading volume isn’t showing many deep-pocketed buyers.

The bigger issue is with the silver miners, who I believe is a better proxy for the direction of gold and gold miner prices. For the past two years, silver miners have been rejected at their 200-day moving average, which is just a bit above their current price. Each time they tag and occasionally move slightly above their 2000-day moving average, they are strongly rejected. Since I plan to overweight into the silver miners, who I believe will outperform the gold miners, it is prudent to wait to see what happens when price meets its 200-DMA.

Adding to the group who sees stocks retesting their December lows, BMO’s chief analyst expects the S&P 500 to retest 2,346 and crude oil to retest its lows as well. The big question will be if it holds or if the Bulls fold.

The broad equity market closed mostly flat on the day in a very low volume session of trading, as investors look towards the deluge of post-market earnings announcements and the Fed meeting tomorrow. Treasury yields were lower on the day with the 10-year yield fast approaching 2.7%.

The American Petroleum Institute reported inventories as Crude: +2.01M Cushing: -682K Gasoline: +2.15M Distillate: +211K.