U.S. markets were choppy to start Friday’s action after President Trump called off strikes on Iran because they were not commensurable relative to Iran’s recent downing of a U.S. drone.

The major stock indexes rebounded off the opening lows on news Vice President Mike Pence postponed a China policy address amid positive signs on trade.

The trip into positive territory was short-lived as weakness returned and lasted into the closing bell.

The consolidation was a healthy sign following the breakout to higher highs throughout the week although the rise in volatility remains a slight concern ahead of the upcoming G20 summit.

The Russell 2000 had its 4-session winning streak snapped after giving back 0.9% while testing a low of 1,546.

Fresh and upper support at 1,550-1,535 was breached and failed to hold by a half-point with the close above the 50/200-day moving averages remaining a slightly bullish signal.

The Nasdaq was lower by 0.2% following the opening pullback to 8,011.

Current and upper support at 8,000-7,950 held on the 2nd-straight close above the former with a move below the latter opening up risk towards 7,900-7,850 and 50-day moving average.

The S&P 500 slipped 0.1% after testing a morning low of 2,946.

Near-term and upper support at 2,950-2,925 held by a half-point with a move below the latter signaling additional risk towards 2,900-2,875 and the 50-day moving average.

The Dow also dipped 0.1% despite coming within 44 points of its September 2018 peak of 26,951 shortly after the open.

The midday fade to 26,705 failed to hold fresh and upper support at 26,750-26,500 with a close below the latter signaling additional weakness towards 26,250-26,000 and the 50-day moving average.

For the week, the Nasdaq surged 3% and the Russell 2000 rose 1.8%. The Dow jumped 2.4% and the S&P 500 soared 2.2%.

Energy paced sector strength after rising 0.7% with Healthcare gaining 0.5%.

Real Estate was the weakest sector after dropping 1.1% while Industrials, Technology and Consumer Discretionary were down 0.5%.

The best performing sectors for the week included Energy (3.7%), Technology (2.9%), Industrials (2.8%) and Communication Services (2.7%). The were no sectors that closed lower.

With 2Q earnings rapidly approaching the 2nd week of July, the outlook has been muted following a flat Q1 season. 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.

Q2 earnings growth is expected to be negative for a number of sectors with Technology, Aerospace, Basic Materials, Construction and Conglomerates seen as double-digit decliners.

For the small-cap S&P 600 index, total Q2 earnings are expected to be -8.8% below the year-earlier level on 3.3% higher revenues.

This compares to -19.8% decline in Q1 earnings on 3.1% higher revenues.

For full-year 2019, total earnings for the S&P 500 index are expected to be up 1.1% on +2.5% higher revenues, which would follow the 23.3% earnings growth on 9.2% higher revenues in 2018.

Double-digit growth is expected to resume in 2020, with earnings expected to be up 10.7%.

Global Economy-European markets settled lower following disappointing economic news.

The Belgium20 and the Stoxx 600 fell 0.4% and UK’s FTSE 100 gave back 0.2%. Germany’s DAX 30 and France’s CAC 40 dipped 0.1%.

Europe’s flash manufacturing PMI for June missed expectations at 47.8 while the services figure of 53.4 was a tad better than expected.

Asian markets closed mixed as tensions in the Middle East weighed on sentiment.

Australia’s S&P/ASX 200 advanced 0.6% and China’s Shanghai rose 0.5%.

Japan’s Nikkei sank 1% while Hong Kong’s Hang Seng and South Korea’s Kospi were lower by 0.3%.

Japan’s flash manufacturing PMI for June slipped to 49.5 from 49.8 in May while the CPI numbers for May were largely in-line with expectations.

PMI Composite Flash slipped 0.4 to 50.1 in the preliminary reading for June, from May’s 50.5, while missing forecasts for a print of 51. This is still above the 50 expansion/contraction threshold but represented the lowest level in nearly 10 years.

The employment component fell to 50.2 from 51.9 last month, the lowest since April 2016.

The services index dropped 0.2 points to 50.7 while the composite fell 0.3 to 50.6, the lowest since February 2016.

Existing Home Sales rose 2.5% to a 5.340 million in May, versus estimates of 5.28 million, and follows an unchanged reading of 5.21 million for April. Single family sales rose 2.6% from -0.9%.

Condo/coop sales increased 1.7% after April’s 7.4% pop. Sales improved in all four regions, led by the Northeast’s 5.6% gain. The months’ supply of homes edged up to 4.3 from 4.2.

The median sales price rose to $277,700 versus the prior $266,900 and is up 4.8% year-over-year, the largest increase since August 2018.

Baker-Hughes reported the U.S. rig count was down 2 rigs to 967, with oil rigs up 1 to 789, gas rigs down 4 to 177, and miscellaneous rigs up 1 to 1.

The U.S. Rig Count is down 85 rigs from last year’s count of 1,052, with oil rigs down 73, gas rigs down 11, and miscellaneous rigs down 1. The U.S. Offshore Rig Count was unchanged at 24 and is up 6 rigs year-over-year.

Market Sentiment – Cleveland Fed Loretta Brainard said downside risks argue for a softening in the rate path.

She added crosscurrents from policy uncertainty have risen since early last month, with basic principles of risk management in a low neutral rate environment and compressed conventional policy space would argue for softening.

Minneapolis Fed President Neel Kashkari revealed he advocated for a 50 basis point easing and wanted a commitment not to raise rates again until the core rate reached the 2% target on a sustained basis.

He thought an aggressive policy action was needed in order to anchor inflation expectations at the target.

The iShares 20+ Year Treasury Bond ETF (TLT)had its 8-session winning streak snapped after plunging to a low of $131.38.

Prior and upper support at $131.50-$131 was breached and failed to hold with a move below the latter getting $130.50-$130 in focus.

Lowered resistance is at $132-$132.50.

RSI is back in a downtrend with major support from mid-May at 60 holding. A move below this level would signal additional weakness towards 55-50.

Current resistance is at 65-70.


Market Analysis – The Spider S&P 500 ETF (SPY) traded to an all-time intraday high of $295.52 before closing lower. Fresh and upper resistance at $295-$295.50 was breached but held.

Continued closes above the $296 level would be a bullish signal for additional strength towards $297-$297.50.

The midday fade to $293.76 held current and upper support at $293.50-$293. A close below $292.50 would signal additional risk towards $290.50-$290.

RSI has leveled out with support at 65-60 with the latter holding throughout much of June.

A close below 60 would be a bearish signal for additional weakness towards 55-50.

Resistance is at 70 with a move above this level signaling additional strength towards 75 and the April high.

The Dow Jones Transportation Average ($TRAN) had its 3-session winning streak snapped despite trading to an intraday high of 10,492. Major resistance at 10,500 and the 50-day moving average held.

Continued closes above the 10,600 level would be a more bullish signal with additional hurdles at 10,700-10,800.

Current support is at 10,300-10,200 following the close back below the 200-day moving average.

A move below 10,200 would be a very bearish development with additional weakness towards 10,100-10,000.

RSI is back in a downtrend with support at 50-45.

A close below the latter would signal additional risk towards 40 and prior support from earlier this month. Resistance is at 55-60.

The percentage of S&P 500 stocks trading above the 200-day moving average closed Friday at 67.85% with the session low reaching 67.65%. Current and upper support at 67.5%-65% held.

A close back below the latter would be a slightly bearish development with risk towards 62.5%-60% and lows from earlier this month. Resistance from mid-April remains at 70% with a close above this level signaling additional strength towards 72.5%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 67.96% with the session low tapping 64.07%. Fresh and lower support at 67.5%-65% was breached but held on the close above the former.

A close below the 65% level would signal additional weakness towards 62.5%-60% and prior support from last week and early May. Near-term resistance is at 67.5%-70%.

A close above the 72.5% level and last week’s peak of 72.81 would signal additional strength towards 75%-80% and late April highs, depending on momentum.

We are holding the following positions:

1. COWN 
6. LE 

Options Traders – the following regular MONTHLY options meet our criteria:

COWN – 20DEC Expiration $17.5 Strike Price Call

ERII – 16AUG Expiration $10 Strike Price Call

HIBB – 20DEC Expiration $30 Strike Price Call

HIIQ – 16AUG Expiration $35 Strike Price Call

INVA – 20SEP Expiration $15 Strike Price Call

LE – 20DEC Expiration $12.5 Strike Price Call

All the best,
Roger Scott.