Market Brief – Thursday 2/7/19

Stocks and Treasury yields headed lower in early trading on strong volume, showing there is a strong buying interest which is matching a strong selling interest. For those looking for confirmation of the market moving higher, the S&P 500 has tested, and so far, failed to close over its 50-week moving average. As I have shown in prior Facebook ‘Live’ updates, the 50-week moving average is a strong guide for the future direction of the broad market.

When the S&P 500 closes and stays over its 50-week moving average, it’s a Bullish signal. When it closes below and fails to rally back above its 50-week moving average, it’s a Bearish signal – especially when it occurs at the end of a decade-long rally in stock prices. Should the S&P 500 stay below its 50-week moving average at tomorrow’s close, it’s an extremely Bearish signal.

The big news of the day, which some say is causing stock prices to fall, is that President Trump is unlikely to meet with President Xi of China prior to March 1st when the alleged deadline for the next round of tariffs expires. Investors seem to want to buy stocks regardless of what is going on between the United States and China, so this shouldn’t be the sole reason behind today’s move down.

The catalyst is likely the $14.2 billion unwind of the Fed’s balance sheet that occurred yesterday. When the Fed removes liquidity, asset prices fall. Investors are still conditioned to buy any drop in stock prices, and with a flurry of buying today came an equally strong burst of selling.

Today’s $19 billion 30-year Treasury auction put all the Treasury Bears on notice, as direct, or domestic bidders, took 17% of the auction, which is the highest percentage since December 2014. Foreign bidders took 56.4%, which is on par with last month, leaving dealers with 26.6% of the auction. Treasury yields fell following the auction.

After failing to break over its 200-day moving average, the S&P 500 revisited its 100-day moving average, where it managed to close just above. Today’s trading volume was about average for the past week. If the S&P 500 fails to close over its 50-week moving average tomorrow, look for a retest of 2,600.

Treasury yields closed lower across the board as the bond market continues to signal further economic weakness. The 7-10-year Treasury ETF closed back over its resistance zone, which sets up a move down in 10-year yields to 2.5%. Thirty-year Treasury yields closed below 3%.

After a nice rally over the past few days, sellers drove agricultural commodity prices lower in hopes to break the buyers. As the sellers have found out for the past six months, buyers are there and are not going away.

Leading the broad equity market lower are the oil and gas producers, who closed at the bottom end of their support channel and below their 50-day moving average. Should the oil and gas producers continue to drop, the broad stock market will follow.

With the government shutdown over, the Fed is massively revising their money supply data. The growth rate was approaching 5% but has been revised lower to 4.52% on an annualized basis, with both the 6- and 3-month trends rising. The money supply data should start reflecting the government shutdown since it is lagged by approximately two weeks, where I expect the growth rate to resume its downward trend.