Market Brief – Thursday 3/7/19

In overnight news, the European Central Bank (ECB) announced they will not raise interest rates in 2019. In addition, the ECB announced it will make stock-based loans available to banks at very low-interest rates, which is likely zero. It is concerning that the ECB is willing to make stock-based loans to member banks who are already loaded with nonperforming or defaulted loans. German 10-year bonds yields plummeted after this announcement.

U.S. equities headed lower on concerns that monetary policy in Europe is failing. U.S. Treasury bond yields also headed sharply lower on the same news, with 5-year Treasury yields back at a critical support level and looking to head lower. Both 10- and 30-year Treasury yields also headed lower. When Treasury yields fall, they pull liquidity from the financial system, which brings risk assets, or stock prices, lower.

I saw an interesting discussion on Twitter last night, where someone wrote about the extremely wet conditions in the Midwestern growing region. As I have mentioned, hybrid crops require near-ideal growing conditions. With much wetter conditions, farmers are going to have a problem planting crops, which this expert said will have all the short-sellers scrambling within two months. Crop prices are now at their fifty-year lows. If stock, bond, oil or real estate prices were at their 50-year lows, investors would scramble to buy them.

The S&P 500, Nasdaq-100 and Russell 2000 are all trading below their 200-day moving average. The only exception is the DJIA, which remains over its 200-DMA. Stocks prices failed to break through their overhead resistance level, which means sellers will likely take prices down to retest buying demand at support.

Support for the S&P 500 is at 2,350, the Nasdaq-100 is at 5,900, the DJIA is at 21,715, and the Russell 2000 is at 1,270.

The big story of the day is U.S. Treasury yields, which collapsed across the board. Five-year Treasury yields are breaking below support, ten-year yields closed again below their 50-DMA and are racing towards support at 2.62%, and thirty-year yields closed below their 50-DMA. The big Treasury short squeeze is coming, which will drag stock prices down.

The large oil and gas producer’s ETF closed under its 50-DMA, which suggests a retest of its December lows is coming. The large gold mining ETF bounced today, but its price move was not confirmed by the large silver mining ETF.

The Federal Reserve’s balance sheet fell by $5 billion last week, further confirming the Fed is not stopping their balance sheet unwinding program.

The M2 Money Supply fell to 4.11% on a year-over-year basis. The 6-month rate of change increased slightly to 1.81%, even though its trend remains downward, and the 3-month rate of change fell to 0.99%. Recessions and depressions occur when the growth rate of the month supply falls below 3.7%.