Market Brief – Monday 2/11/19

Equities started the day higher on hopes for a resolution between the U.S./China trade war, as preliminary negotiations begin today in Beijing. The early move higher in stocks was muted, even after the Fed suggested on Friday that Quantitative-Easing-Forever could come during the next recession. In the past, such a mention would have sent stocks several percentage points higher.

The real catalyst for stocks slightly rising in early trading is more a function of volatility and the bond market. Volatility is confirming support, while Treasury yields have slightly bounced off their support. While stocks have moved higher over the past several weeks, crude oil and Treasury yields are not confirming the move.

Regardless of the outcome from this week’s trade talks, unless foreign central banks start buying Treasuries or the Fed stops their balance sheet unwind, world dollar liquidity will continue to fall and with it, cause global growth to continue to slow.

Stocks stayed in a tight trading range all day with trading volumes still below average. Treasury yields moved higher, but couldn’t hold on to their gains, which is a sign the short-sellers are running low on ammunition to defend their short-Treasury positions.

From a technical perspective, the stock market is in a Bear market. The S&P 500 has failed to reclaim its 50-week moving average and has been rejected four times at its 200-day moving average.

Physical gold and the miners fell slightly, but a larger move down should be in order. Gold tends to follow volatility, although with a lag, and since volatility recently peaked, it fell.

Oil and gas producers were higher today but were rejected at their overhead resistance level. Look for this sector and the broad market to retest their December lows.

Agricultural commodities appear to be entering a blow-off bottom where the short-sellers appear to win by driving prices below their six-month trend. Buyers remain strong at these low-price levels, and with very cold weather blanketing the growing region, agriculture prices should head higher as they normally do around this time of the year.