U.S. markets showed continued strength on Friday while setting a fresh round of historic highs on hopes of an imminent rate cut at the end of the month.

Fed Chair Jerome Powell did his part to lift bullish spirits following his testimony on Capitol Hill, but the action will now focus on the upcoming 2Q earnings season.

The Dow soared 0.9% while closing a point below its record high of 27,333.

Blue-sky and lower resistance at 27,250-27,500 was cleared and held with upside momentum towards 27,750-27,800 on a close above the latter.

The Nasdaq was up 0.6% following the late day push to an all-time peak of 8,245 and closing high of 8,244.

Fresh and lower resistance at 8,225-8,300 was cleared and held on the 3rd-straight close above the 8,200 level.

The S&P 500 was higher by 0.5% after closing at its session peak of 3,013.

New and lower resistance at 3,000-3,025 was cleared and held with potential towards 3,050-3,060 on a move above the latter.

The Russell 2000 rose 0.4% while holding positive territory throughout the session and testing a high of 1,574. Prior and lower resistance at 1,570-1,575 was cleared and held with a move above the latter getting 1,585-1,600 back in focus.

The index climbed just out of correction territory with the all-time high at 1,742.

For the week, the Dow rallied 1.5% and the S&P 500 advanced 0.8%.

The Nasdaq jumped 1% while the Russell 2000 was lower by 0.3%.

Industrials and Consumer Discretionary led sector strength on Friday with gains of 1.8% and 1.2%, respectively. Healthcare was the weakest sector after falling 1.1%.

The best performing sectors for the week included Energy (2.1%), Consumer Discretionary (2%), Communication Services (1.7%) and Technology (1.5%). Healthcare (-1.4%), Materials (-0.9%), Real Estate (-0.2%) and Utilities (-0.1%) were the weekly laggards.

The Q2 earnings season heats up in the upcoming week with roughly 150 companies reporting Q2 results, including 57 S&P 500 members.

While the Finance sector companies will likely dominate the headlines, there will be plenty of representation from other sectors as well, including Technology.

The season is already underway with results from two dozen S&P 500 members in the books.

For the companies that have reported Q2 results, total earnings are down -12.8% from the same period last year on 3.1% higher revenues, with 83.3% beating EPS estimates and 62.5% beating revenue estimates.

For Q2 as a whole, total earnings for the S&P 500 index expected to be down -3.4% from the same period last year on 3.9% higher revenues. This would follow the -0.2% decline on 4.5% higher revenues in Q1.

It is hard to look for aggregate trends from this small sample of reports but growth is unsurprisingly on the weak side.

However, positive EPS surprises appear to be tracking higher in the early stage.

Global Economy – European markets closed mixed after the Bank of England’s Gertjan Vlieghe stated the possibility of marked rate cuts in the case of a no-deal Brexit scenario.

France’s CAC 40 rose 0.4% and the Belgium20 advanced 0.2%. The Stoxx 600 was up a tenth-point, or 0.04% while Germany’s DAX 30 and UK’s FTSE 100 slipped 0.1%.

Asian markets finished mostly higher after China showed a widening in its trade surplus.

China’s Shanghai rose 0.4% and South Korea’s Kospi added 0.3%. Japan’s Nikkei climbed 0.2% and Hong Kong’s Hang Seng nudged up 0.1%.

Australia’s S&P/ASX 200 gave back 0.3%.

China exports fell -1.3% in June while imports sank 7.3%. Expectations were for exports to have declined -2% from a year ago, while imports were expected to have contracted -4.5%.

June PPI posted gains of 0.1% on the headline and 0.3% on the core, after rising 0.1% and 0.2% respectively, in May. Expectations were for dip of -0.1% on the headline and a gain of 0.2% on the core.

On a 12-month basis, the headline slowed to 1.7% year-over-year versus 1.8% in May, with the ex-food and energy component steady at 2.3% year-over-year. In the goods sector, prices dipped -0.4%, with energy falling -3.1% and food rising 0.6%.

Services prices were up 0.4% with a 1.3% gain in trade.

Baker Hughes reported the U.S. rig count was down 5 rigs to 958, with oil rigs lower by 4 to 784, gas rigs declining 2 to 172, and miscellaneous rigs up 1 to 2.

The U.S. Rig Count is down 96 rigs from last year’s count of 1,054, with oil rigs down 79, gas rigs down 17, and miscellaneous rigs unchanged at 2.

The U.S. Offshore Rig Count is up 2 rigs to 26 and up 7 rigs year-over-year.

Market Sentiment – Chicago Fed Charles Evans said more monetary support will probably be required to achieve the 2% inflation objective. He suggested with a couple of rate cuts, PCE could be at 2.2% in 2021.

Fundamentals are good currently, he said, and believes the setting for rate policy is about neutral.

Evans added the labor market growth is good, while consumer spending has been very strong but business fixed investment is weaker than expected. He expects growth of about 2%, close to what he sees as a sustainable trend.

He is nervous about under-running the inflation objective.

Richmond Fed Thomas Barkin said risks are more tilted to the downside than balanced. Though consumer spending is incredibly strong, he is worried about the weakening in business confidence and the slowing in investment.

On inflation, Barkin believes the low price pressures are a victory not a defeat.

He is skeptical about going to negative interest rates as a policy tool, noting it hasn’t been a huge success in Europe.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide after trading to a high of $130.45. Prior and lower resistance from mid-June at $130.50-$131 was challenged but held.

Continued closes above the latter would be a more bullish signal near-term selling pressure has abated.

Current support at $130-$129.50. A close below $129 and the 50-day moving average would be a renewed bearish signal.

RSI appears to have bottomed with resistance at 45-50.

A close above the latter and prior support from late April/ early May would be a bullish signal for additional strength towards 55-60. Current support is at 40.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 3rd-straight session after trading to an intraday and all-time high of $273.39.

Blue-sky and lower resistance at $273.50-$275 was challenged but held.

Rising support is at $272.50-$271. A close below $270 would signal a possible near-term top with risk towards $268-$267.50.

RSI is in an uptrend with February resistance at 75 holding. Continued closes above this level sets up a run towards 80 and the early November 2017 peak.

Although current levels represent slightly overbought conditions there is the chance the 90 level comes into play and would represent the January 2018 peak. Current support is at 70-65.

The Technology Select Sector Spiders (XLK) extended its winning streak to 4-straight sessions after reaching an intraday and record peak of $81.19.

Fresh and lower resistance at $81-$81.50 was cleared and held. Continued closes above the latter would be an ongoing bullish signal for a push towards $82.50-$85, depending on momentum.

Current support is at $80.50-$80. A close below the latter would be a slightly bearish development with further risk towards $79-$78.50 and support from earlier this month.

RSI remains in an uptrend with resistance at 70 and the monthly peak. A move above this level would signal additional strength towards 75-80 and the latter representing the late April high.

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

The percentage of S&P 500 stocks trading above the 200-day moving average closed Friday at 72.85%, up 1.4%, with the session high reaching 73.05%.

Lower resistance at 72.5%-75% was cleared and held with this month’s 52-week peak reaching 74%.

A close above 75% could lead towards a pop towards 77.5% and the December 2017 high but also signaling overbought levels. Current support is at 70%.

A close below this level would be a slightly bearish development with risk towards 67.5%-65%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 84.46%, up 3.88%, and the session high. Last week’s peak reached 88.34%.

This was the second time this level has been tapped this month with February and upper resistance 87.5%-90% remaining in play.

The 93.20% level was triggered twice in February.

Support is at 82.5%-80%.

There is still risk towards 77.5%-75% on a move below 80% with last week’s double-bottom low at 74.75% and an important level to watch going forward for additional weakness.

We are holding the following positions:

ADBE: +25% Allocation | $279.00 Protective Stop Loss | $339.09 Profit Objective
FB: +25% Allocation | $183.07 Protective Stop Loss | $218.61 Profit Objective
LRCX: +25% Allocation | $178.55 Protective Stop Loss | $200.70 Profit Objective
SNPS: +25% Allocation | $124.37 Protective Stop Loss | $150.82 Profit Objective

Option Traders – the following (regular monthly) options meet our criteria:

ADBE – 20SEP $320 Strike Price CALL (Expires September 20, 2019)
FB – 20SEP $200 Strike Price CALL (Expires September 20, 2019)
LRCX – 20SEP $195 Strike Price CALL (Expires September 20, 2019)
SNPS – 20SEP $140 Strike Price CALL (Expires September 20, 2019)

All the best,
Roger Scott.