U.S. markets traded in negative territory throughout much of Friday’s session while closing with slight losses and hovering in another tight trading range.

The late day strength was an encouraging sign as the Dow and S&P made a trip into positive territory with all of the major indexes holding near-term support levels into the weekend.

The major indexes also posted back-to-back weekly gains, another bullish signal, and comes ahead of the Fed’s decision on interest rates this Wednesday.

Volatility also settled lower despite the overall market pullback but has also been stuck in a mini range.

The Russell 2000 fell 0.8% after testing and closing on its late day low of 1,522. Upper support at 1,515-1,500 easily held although a close below the latter would be a bearish signal.

Major resistance levels remain at 1,535-1,550 and the 200/50-day moving averages.

The Nasdaq avoided a weekly low but still gave back 0.5% following the intraday pullback to 7,778 and close just below the 7,800 level.

Near-term and upper support at 7,750-7,700 held with a close below the latter opening up risk towards 7,650-7,600.

Major resistance remains at 7,850 and the 50-day moving average and levels that were challenged but held throughout all of last week.

The S&P 500 slipped 0.2% following the morning pullback to 2,879. Current and upper support at 2,875-2,850 held with the index holding its 50-day moving average for the 5th-straight session.

The 2,900 level remains key resistance going forward and a level that was breached twice last week but held.

The Dow dipped 0.1%, after trading to an intraday low of 25,988.

Near-term and upper support at 26,000-25,750 and the 50-day moving average was breached but held with both levels also holding for the 5th-straight session.

A close above near-term resistance at 26,250 would be a more bullish signal for higher highs with last week’s peak at 26,248.

For the week, the Nasdaq was up 0.7% and the Russell 2000 rose 0.6%. The S&P 500 added 0.5% and the Dow gained 0.4%.

Utilities led sector strength after rallying 1.1% while Real Estate advanced 0.4%.

Technology and Energy were the leading laggards after falling 0.9% and 0.7%, respectively.

The best performing sectors for the week included Consumer Discretionary (3.6%), Technology and Communication Services (2.6%) and Materials (1.9%). Utilities were the only sector that closed in the red (-0.6%).

The winding down of the Q1 earnings season is all but complete with the Retail sector announcing numbers over the past few weeks.

Total Q1 earnings and revenues for the sector are up 12.2% and 7.9% respectively, with 73.7% beating EPS estimates and 52.6% beating revenue estimates.

For the S&P 500 index as a whole, Q1 earnings remained below the year-earlier for a number of sectors, with Energy (-22.4% decline), Basic Materials (-11.5%) and Technology (-7.2%) being the biggest drags.

Excluding the Energy sector, Q1 earnings growth would be up 1.3%.

For the small-cap S&P 600 index, total Q1 earnings were -17.8% below the year-earlier level on 5.5% higher revenues, with just a small number of reports remaining.

The growth picture is not expected to improve for the current and 2Q quarter, which would follow the roughly flat finish in Q1.

Driving the growth challenge is tough comparisons, with tax cuts also boosting the year-earlier periods.

Total Q2 earnings for the S&P 500 index are expected to be down -3.1% from the year-earlier period on 4.3% higher revenues.

This would follow the 0.2% earnings growth in Q1 on 5.2% higher revenues

For full-year 2019, total earnings for the S&P 500 index are expected to be up 1.8% on 3.3% higher revenues, which would follow the 23.1% earnings growth on 9.1% higher revenues in 2018.

Double-digit growth is expected to resume in 2020, with earnings expected to be up 10.9% that year.

Global Economy – European markets settled lower amid ongoing Middle East tensions and disappointing economic news out of France.

The Belgium20 dropped 0.8% and Germany’s DAX 30 declined 0.6%. The Stoxx 600 was lower by 0.4% and UK’s FTSE 100 was off 0.3%. France’s CAC 40 slipped 0.2%.

France consumer price index for May checked in at 0.9% year-on-year and 0.1% month-to-month, missing forecasts of 1% and 0.2%, respectively.

Asian markets settled mixed following a slew of economic news out of China.

China’s Shanghai tanked 1% and Hong Kong’s Hang Seng sank 0.7%. South Korea’s Kospi was down 0.4%.

Japan’s Nikkei was higher by 0.4% and Australia’s S&P/ASX 200 edged up 0.2%

China industrial output rose 5% in May, slower than the 5.4% increase in April, and forecasts of 5.5%.

Fixed-asset investment outside Chinese rural households climbed 5.6% in the January-May period, below expectations for a 6.1% gain, and lower than the 6.1% increase recorded in the January-April period.

China retail sales climbed 8.6% in May, up from a 7.2% gain in April, while topping estimates for 8.2% growth.

Meanwhile, China’s unemployment rate held steady at 5% in May.

Retail Sales for May rose 0.5% for both headline and ex-autos, but slightly below forecasts for a rise of 0.6%. However, April sales were revised to a 0.3% increase versus -0.2% while March was bumped to 1.8% from 1.7%.

The April ex-auto component was nudged up to 0.5% from 0.1%, with March at a 1.4% gain from 1.3%. Sales excluding autos, gas, and building materials increased 0.5% after a 0.4% prior gain.

Auto sales rebounded 0.7% in May versus -0.5% (revised from -1.1%). Gas station sales edged up 0.3% from 2.1% (revised from 1.8%). Food, beverage sales dipped 0.1% from 0.2%. C

lothing sales were flat versus -0.2%.

Electronics increased 1.1% from -1.3%, with sporting goods sales rising 1.1% versus 1% (revised from 0.2%). Non-store sales climbed 1.4% versus 0.5% (revised from -0.2%).

Industrial Production increased 0.4% in May, with capacity utilization rising to 78.1%, both topping expectations of 0.2% and 78%, respectively.

The 0.5% decline in April production was bumped up to -0.4% (but March was nudged down to a 0.1% gain from 0.2%). There was no revision to the 77.9% April capacity rate. Manufacturing edged up 0.2% from -0.5%. Motor vehicle and parts production climbed 2.4% versus -0.8% (revised from -2.6%).

Machinery production rebounded 1.1% from -3.2% (revised from -2.6%). Computer/electronics were up 0.5% from 0.4% (revised from -0.5%).

Utilities bounced 2.1% from -3.1% (revised from -3.5%). Mining inched up 0.1% from 2.2% (revised from 1.6%). This is another stronger than project

Business Inventories rose 0.5% in April, while sales fell 0.2%, matching forecasts.

There was no revision to March’s unchanged inventory print, but sales were lowered to a 1.3% gain versus the prior 1.6% jump. The inventory-sales ratio increased to 1.39 from 1.38.

Consumer Sentiment Index for June came in at 97.9 versus estimates of 98.4.

The decline was a result of the 4.9 point drop to 88.6 in the expectations index, which had jumped 6.1 to 93.5 previously. The current conditions index rose 2.5 points to 112.5 after sinking 2.3 ticks to 110 in May.

The 12-month inflation gauge dipped back to 2.6% from 2.9% while the 5-year index dropped to a 2.2% rate from May’s 2.6%.

Baker-Hughes Rig Count reported the U.S. rig count was down 6 rigs to 969, with oil rigs down 1 to 788, gas rigs down 5 to 181, and miscellaneous rigs unchanged at 0.

The U.S. Rig Count is down 90 rigs from last year’s count of 1,059, with oil rigs down 75, gas rigs down 13, and miscellaneous rigs down 2.

The U.S. Offshore Rig Count is up 1 rig to 24 and up 4 rigs year-over-year.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th-straight session after reaching an intraday peak of $131.71. Lower resistance at $131.50-$132 was cleared but held.

A close above the latter and the recent 52-week at $132.58 would be ongoing bullish signals with upside potential towards $133.50-$135, depending on momentum.

Rising support is at $131-$130.50. A close below $130 would be a slightly bearish development with risk towards $129-$128.50.

RSI remains in an uptrend with resistance at 70.

Continued closes above this level would signal additional strength towards 75-80 and the latter representing the late May peak.

Support is at 65-60 with a close below the latter signaling additional weakness.

Market Analysis – The Russell 2000 ETF (IWM) had its 2-session winning streak snapped after trading in negative territory throughout the session while testing a low of $151.72.

Near-term and upper support at $151.50-$151 held on the close back below the 200-day moving average.

A move below the $150 level would indicate a breakdown out of the current 6-day trading range and would be a bearish development.

Current and lowered resistance is at $153-$153.50 with more important hurdles at $154-$154.50 and the 50-day moving average.

RSI is back in a slight downtrend with support at 45-40. A close below the latter would signal additional weakness towards 35-30 and the latter representing the late May low.

Resistance is at 50-55 with a move above the latter signaling additional strength towards 60-65.

iShares MSCI Emerging Markets (EEM) extended its losing streak to 3-straight sessions following the pullback to $41.08 and close back below its 200-day moving average.

Prior and upper support at $41-$40.75 held. A close below the $40.50 level would be an ongoing bearish development with risk towards the $40-$39.75 and late May lows.

Near-term and lowered resistance is at $41.25-$41.50.

A close above $41.75-$42 would indicate selling pressure has abated with more important hurdles at $42.25-$42.50 and the 50-day moving average.

RSI is in a downtrend with support at 45-40.

A close back below the latter opens up risk towards 35-30 with the latter representing the May trough.

Resistance is at 50 with strength towards 55-60 on a move above this level.

The percentage of S&P 500 stocks trading above the 200-day moving average closed Friday at 61.11% with the session low reaching 60.71%. Current and upper support at 60%-57.50% held.

A close back below the latter would be a slightly bearish development with risk towards 55%-52.5% and lows from earlier this month.

Resistance from early April remains at 62.5%-65% with a close above the latter signaling additional strength towards 67.5%-70%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 44.66% and the session low.

This level was tapped twice last week with upper support at 42.5%-40% holding.

A close below the latter and the previous breakout level from earlier this month would signal additional weakness towards 37.5%-35%. Near-term resistance is at 47.5%-50%.

A move above the latter would signal additional strength towards 52.50%-55%.

Position Update

Cluster should bounce back next few sessions.

I’m expecting potentially more downside; in which case the increased exposure to the downside should come into play.

Keep your eye on the 50 day line and the 200 day line on the major indices.

We are allocating the portfolio as follows:

Long 30% in XLRE  closed on Friday at 37.72
Long 20% in XLU  closed on Friday at 60.81
Short 30% in XLF  closed on Friday at 27.25
Short 20% in XLB  closed on Friday at 57.87

Option Traders… the following regular MONTHLY options meet our criteria:

XLRE – 16AUG $36 Strike Price CALL (Expires August 16, 2019)
XLU – 20SEP $58 Strike Price CALL (Expires September 20, 2019)
XLF – 20SEP $26 Strike Price PUT (Expires September 20, 2019)
XLB – 20SEP $52 Strike Price PUT (Expires September 20, 2019)

Roger Scott.