This morning the ECB cut rates by 25 basis points. They are “meaningfully less restrictive”.

PRE-OPEN MARKET COMMENTS THURSDAY – Many traders are confused by the notion of “bad news is good news”. In the early stages of economic weakness the Fed will cut rates to stimulate job growth and economic activity. The market rejoices on “bad news” because Fed easing will turn things around. Don’t be confused, bad news is bad news.

This morning the ECB cut interest rates. Yippee! EU markets must be trading higher – right? No, they are down. Europe (and many other parts of the world) have been in an economic downturn for many months. As economic conditions continue to deteriorate, central banks are forced to ease more progressively. Their earlier efforts have not been “bearing fruit” and they need to step it up. Growth in Europe has been flat for many quarters and now they have reached the point where they are “easy”. New tariffs and US/Ukrainian relations were mentioned in the ECB’s statement, but this economic downturn has been brewing for many quarters. They are much more concerned with economic growth than they are with inflation.

The Fed has been one of the few central banks around the world that has not been easing. US economic growth has been stable. ISM Manufacturing and ISM Services were both in expansion territory. This morning initial jobless claims were 222K and that was a good number. On the flip side, the Atlanta Fed now projects negative Q1 GDP in the US of -2.8%. ADP reported that only 77K news jobs were reported in the private sector in February. Challenger, Gray & Christmas reported that new job layoffs soared to their highest level since 2020. The government is not hiring workers, it is laying them off. To put this into perspective, the government hired 440K workers in 2024 and 709K workers in 2023. This has been a substantial source for new jobs in the US.

The undertow I have been mentioning for the last few months is starting to manifest. Bull markets die hard and we are near the 200-day MA. This is a considerable overnight drop and those tend to “stick”. I believe the 200-day MA will be tested today. That level will act as a magnet and we are likely to rest there ahead of the jobs report. I believe this is the most likely outcome today.

Conditions have been volatile intraday so I am not in favor of chasing a gap and go lower. The overnight news was not dire and a bounce early in the session would be our best day trading scenario. We want to see a wimpy move into the gap that stalls out in the first 45 minutes. That will give us an opportunity to find stocks with relative weakness and to enter well. If the market leaks lower we have about 40 S&P 500 points to the 200-day MA. There is some room, but not a lot. The key is to find stocks that broke key support yesterday on heavy volume and that were not able to rally back above that support yesterday. The market staged a big move Wednesday and if the stock was not able to get off of the deck it is because there are sellers unloading shares. Those stocks have resistance and they will resume the move lower this morning.

The opportunity to enter bearish swing trades lasted a few minutes and it came Monday morning when the SPY tested the 50-day MA. We needed a slightly longer window and an extra day would have been great. We don’t always get what we want. After a big drop this week, the odds of a bounce are elevated. We have to wait for that bounce and it needs to stall below the 100-day MA. That is when we can take longer-term bearish swing trades. For now, we have to stick with day trades ahead of a major economic report.

Support is at the 200-day MA and resistance is at the 100-day MA.