U.S. markets closed higher for the 2nd-straight session and ahead of President Trump and China President Xi’s face-to-face meeting at the G20 gathering over the weekend.
The talks are not expected to result in a trade deal, although an agreement to continue trade negotiations would likely soothe fears of a breakdown in negotiations.
Friday’s action came after a number of Big Banks passed the Fed’s annual stress test and got the okay to raise dividends and share buybacks.
The was a bullish signal for the market as the Financial sector is back to challenging late April and early May resistance levels on the breakout.
The Russell 2000 was up for the 3rd-straight session after soaring 1.3% while reaching a late day peak of 1,568.
Prior and major resistance from mid-June and early May at 1,575 held with continued closes above this level getting 1,585-1,600 back in focus.
The S&P 500 was up 0.6% after settling 2 points off its session top of 2,943 ahead of the closing bell.
Near-term and lower resistance at 2,950-2,975 held with the recent all-time high at 2,964.
The Nasdaq gained 0.5% to extend it winning streak to 3-straight, as well, after testing a high of 8,010.
Current and lower resistance at 8,000-8,100 was cleared and held with the all-time high 2% away from triggering.
The Dow snapped a 2-session slide after advancing 0.3% while kissing a midday high of 26,638. Near-term and lower resistance at 26,600-26,850 was cleared but held by a smidge with the early October 2018 all-time and the 52-week high at 26,951.
For the week, the the Russell 2000 rose 1.1% while the Nasdaq gave back 0.4%. The Dow was down 0.5% and the S&P 500 was lower by 0.3%.
For the month of June, The Nasdaq zoomed 7.4%; the Dow jumped 7%; the S&P 500 surged 6.9%; and the Russell 2000 rallied 6.8%.
Financials and Energy paced sector strength after rising 1.4% and 1.2%, respectively. Consumer Staples and Technology were the only sectors that showed weakness with dips of less than 0.1%.
The best performing sectors for the week included Materials and Financials (1.4%), Industrials (0.4%), and Energy (0.2%).
The leading laggards were and Real Estate (-2.7%), Utilities (-2.2%), and Healthcare (-1.2%). For June, all sectors closed higher, led by Materials (up 9.9%) and Technology (6.8%).
Global Economy – European markets closed higher across the board after inflation remained stable but below the ECB’s target rate of 2%.
The Belgium20 and Germany’s DAX 30 rallied 1% while France’s CAC 40 rallied 0.8%. The Stoxx 600 rose 0.7% and UK’s FTSE 100 climbed 0.3%.
Eurozone inflation was flat at 1.2% in June, matching forecasts, and May’s print.
The core inflation, which strips out volatile prices such as energy, rose slightly to 1.1% in June, from 0.8% a month earlier.
Asian markets showed weakness to end the week with traders awaiting news from the weekend G20 summit.
Australia’s S&P/ASX 200 fell 0.7% and China’s Shanghai gave back 0.6%. Hong Kong’s Hang Seng and Japan’s Nikkei were lower by 0.3% while South Korea’s Kospi was higher by 0.2%.
Personal Income rose 0.5% in May, with Spending up 0.4%, topping forecasts of 0.3% for both. Wages and salaries rose 0.2% versus 0.3% previously.
Disposable income was up 0.5%, matching April. The savings rate was unchanged at 6.1%. The chain price index was up 0.2% versus 0.3% previously while the core rate increased 0.2%, as it did in April.
On a 12-month basis, headline inflation gauge slowed to 1.5% year-over-year from 1.6%, and the core rate was steady at 1.6%. Real spending rose 0.2%, the same as April.
Chicago PMI dropped 4.5 points to 49.7 in June after rising 1.6 points to 54.2 in May. This is much weaker than expectation of 53.6 and represented the first time in contractionary territory since the 49.9 print from January 2017.
Consumer Sentiment for June came in at 98.2, topping estimates of 97.9, but down 1.8 points versus May’s 100 reading. Weakness was in the expectations component which fell to 89.3 from May’s 93.5.
The current conditions index rose to 111.9 versus 110 in May.
The 12-month inflation gauge eased to 2.7% from 2.9% in May. The 5-year inflation index slipped to 2.3%, matching the record low, and compares to the 2.6% pace from May.
Baker-Hughes reported the U.S. rig count was unchanged from last week at 967, with oil rigs up 4 to 793, gas rigs down 4 to 173, and miscellaneous rigs unchanged at 1.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) stayed in a min trading range for the 5th-straight session following Friday’s intraday pullback to $132.45.
Current and upper support at $132.50-$132 was breached but held with backup help at $131.50-$131.
Resistance remains at $133-$133.50 with upside potential towards $134.50-$135 and fresh 52-week peaks on a close above the latter.
RSI has flatlined with support at 60 and the June low.
A close below this level would signal additional weakness towards 55-50. Resistance is at 65-70.
Market Analysis- The Spider Small-Cap 600 ETF (SLY) was up for the 3rd-straight session after testing a 2nd-half peak of $67.80. Current and lower resistance at $67.50-$68 was cleared and held on the strong close back above the 200-day moving average.
Continued closes above $68, and prior support from late April/ early May would be a bullish signal for a run towards $69-$70.
Near-term support is at $67-$66.50 the 50-day moving average. A close below the latter would signal a false breakout with risk towards $65-$64.
RSI is in an uptrend with early May resistance at 65. A close above this level would be a bullish signal for additional strength towards 70-75 and mid-February peaks.
Support is at 60-55 with a move below the latter signaling additional weakness.
The Spider S&P Retail ETF (XRT) also extended its winning streak to 3-straight sessions after tapping a high of $42.56. Near-term and lower resistance at $42.50-$43 held. A close back above the latter and the 50-day moving average would be a continuing bullish signal.
Near-term support is at $42-$41.50. A close below the latter would be a renewed bearish development with additional risk towards the $40 area.
RSI is in an uptrend with resistance at 55 and prior peak from mid-June. A close above this level would signal additional momentum towards 60-65 and the latter representing the late February peak. Support is at 50-45.
The percentage of S&P 500 stocks trading above the 200-day moving average closed Friday at 71.42% with the peak reaching 71.82%. Resistance at 70% was cleared and held with the late April high at 72.87%.
This also represents 52-week peak and tends to signal overbought levels. However, a run towards 75%-77.5% and December 2017 resistance could come into play, depending on momentum.
Current support is at 70%-67.5%. A close back below the latter would be a slightly bearish development with risk towards 65%-62.5%.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 73.78% with the session high tapping 74.75%. Fresh resistance from late March at 75%-77.5% held.
A close above the the latter would signal additional strength towards 80% and late April highs.
Support is at 72.5%-70%. A close below the the latter would signal additional weakness towards 67.5%-65%.
We are allocating the portfolio as follows:
Buying 20% in XLK closed on Friday at 78.04
Buying 30% in XLRE closed on Friday at 36.77
Buying 25% in XLU closed on Friday at 59.63
Short 25% in XLE closed on Friday at 63.71
Option Traders… the following regular MONTHLY options meet our criteria:
XLK – 20SEP $78 Strike Price CALL
XLRE – 15NOV $38 Strike Price CALL
XLU – 20SEP $61 Strike Price CALL
XLE – 20SEP $61 Strike Price PUT
All the best,