U.S. markets opened in positive territory on Friday but traded in a narrow range afterwards to finish mixed while snapping a two-week win streak.
Earnings continue to come in better-then-expected from some of the market’s biggest and most influential companies. With 1Q earnings season halfway over, some of the euphoria seems to be wearing off.
However, volatility closed below a key level of support and is suggesting higher highs heading into May.
The Russell 2000 declined for the sixth-time in seven sessions after slipping 0.1% while bottoming at 1,549 intraday. The index held its 50-day moving average for the 4th-straight session.
The Dow dipped 11 points, or 0.05% after trading to a low of 24,194 while holding the 24,000 level for the third-straight session. For the week, both indexes gave back 0.6%.
The S&P 500 was up 0.1% after trading to an intraday high of 2,677 and remains less than 1% away from clearing its 50-day moving average. For the week, the index was down a quarter-point, or 0.01%.
The Nasdaq rose a point, or 0.02%, to close higher for a second-straight session after reaching a morning peak of 7,197. The index just missed clearing its 50-day moving average and was down 0.4% for the week.
Real Estate and Utilities showed the most strength with the sectors rising 1.3% and 1.1%, respectively. Energy sank 1.1% to pace sector laggards.
For the week, Utilities and Real Estate were up 2.8% and 2.6%. Industrials were the leading laggard after tanking 3.2% followed by Materials which tumbled 2.1%.
Total earnings for the S&P 500 members that have reported results this far are up 25.1% from the same period last year on 10% higher revenues, with 76.8% topping EPS estimates and 73.8% beating revenue estimates.
The proportion of companies beating both EPS and revenue estimates is 61.4%.
For the Tech sector, Q1 results are up 31.3% from the same period last year on 11.4% higher revenues, with 92.9% beating EPS estimates and 89.3% topping revenue estimates.
The Energy sector remains a big growth contributor in Q1, with total earnings for the sector expected to be up 70.8% from the year-earlier period on 15.4% higher revenues.
The Finance sector, total Q1 earnings are expected to be up 26.4% from the same period last year on 5.7% higher revenues.
Looking at Q1 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index expected to be up 22.6% from the same period last year on 8.4% higher revenues.
This would follow the 13.4% earnings growth on 8.6% revenue growth in the 2017 Q4 earnings season, the best quarterly performance in 7 years.
Global Economy – European markets closed higher across the board despite mixed economic news. UK’s FTSE 100 jumped 1.1% while Germany’s DAX 30 rose 0.6% and France’s CAC 40 advanced 0.5%. The Stoxx 600 Europe climbed 0.2% and the Belgium20 gained 0.1%.
ECB Executive Board member Mersch said underlying inflation continues to be subdued and has yet to show convincing signs of a sustained upward trend.
Eurozone April economic confidence was unchanged at 112.7, but stronger than expectations for a dip of 0.6. The April business climate indicator fell 0.09 to 1.35, worse than expectations for a slide of 0.06.
UK Q1 GDP rose 0.1% quarter-over-quarter and 1.2% year-over-year, weaker than expectations of 0.3% and 1.4%, respectively
German March unemployment fell 7,000 to 2,370,000, a smaller decline than expectations for a drop of 15,000. The March jobless rate was flat at a record low of 5.3%, matching forecasts.
Asian markets ended the week higher and were led by Hong Kong’s Hang Seng 0.9% pop. Japan’s Nikkei, Australia’s S&P/ASX 200 and South Korea’s Kospi rallied 0.7% while China’s Shanghai added 0.2%.
Japan March industrial production rose 1.2% month-over-month and 2.2% year-over-year, ahead of expectations of 0.5% and 2%, respectively.
The Japan March jobless rate was unch at 2.5%, matching forecasts. The March job-to-applicant ratio rose 0.01 to a 44-year high of 1.59, also matching expectations.
France Q1 GDP rose 0.3% quarter-over-quarter and 2.1% year-over-year, weaker than expectations of 0.4% and 2.3%, respectively.GDP growth slowed to 2.3% in Q1 from a rate of 2.9% in Q4, topping the forecast for a 2% rate.
Personal consumption was 1.1% higher in the first three months of the year, as expected.
Employment Cost Index rose 0.8% in Q1, versus a forecasted increase of 0.7%.
Chicago PMI eased to 57.4 in March versus expectations for a print of 57.9.
Consumer Sentiment fell 2.6 points to 98.8 in April, topping expectations of 98.
Baker Hughes reported that the U.S. rig count was up 8 rigs from last week to 1,021, with oil rigs up 5 to 825, gas rigs up 3 to 195, and miscellaneous rigs unchanged at 1.
The U.S. Rig Count is up 151 rigs from last year’s count of 870, with oil rigs up 128, gas rigs up 24, and miscellaneous rigs down 1 to 1. The U.S. Offshore Rig Count was unchanged at 18 and up 1 rig from last year’s count of 17.
Market Sentiment – The FOMC meets on May 1st-May 2nd this week with no policy changes expected. This meeting will not include either a press conference or new forecasts with the policy statement likely to be similar to March’s with moderate economic growth, alongside strong job gains.
The Fed could also reiterate that consumption and fixed investment have slowed versus their Q4 rates.
The Fed is likely to repeat that market-based inflation measures have moved up, while survey measures are little changed, on balance.
Recent Fedspeak has generally supported the gradualist tightening posture going forward, so analysts suspect the vote will be unanimous, as was the case in March.
Implied rates are showing little risk for a hike, but are practically fully priced for a 25 basis-point increase at the June 12th-13th meeting, and are showing high probability for another tightening at the September 25th-26th policy meeting.
Chances for a fourth 2018 tightening in December are at about 40%.
The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the second-straight session after reaching a peak of $118.95. Resistance at $119-$119.50 and the 50-day moving average held with continued closes above the latter being a bullish development.
Near-term support is at $118.50-$118.
RSI is back in an uptrend with resistance at 50. Continued closes above this level would be a bullish signal for a possible push towards 55-60. Support is at 40 with a dip below this level likely leading to another backtest towards 35-30.
Market Analysis – The Russell 2000 ETF (IWM) fell for the sixth-time in seven sessions with Friday’s low hitting $153.78. Support at $154-$153.50 and the 50-day moving average held for a fourth-straight session.
A close below $153 would be a bearish development. Near-term resistance is at $155-$155.50 with a close above $156 being a slightly bullish signal.
RSI has been holding support at 50 with a close below this level signaling further weakness towards 45-40.
Resistance is at 55-60 with the latter representing the mid-month high.
Bitcoin Investment Trust (GBTC) traded to a high of $16.20 with near-term resistance at $16.25-$16.50 holding. Additional hurdles are at $17-$17.50 with a move above the latter being a continued bullish signal.
Support is at $15-$14.50 and the 50-day moving average and levels that have been holding for six-straight sessions.
A death-cross has also been avoided as the 50-day moving average has leveled out with the 200-day moving average. RSI is in a slight uptrend with resistance at 60-65. Support is at 50 with a move below this level likely signaling additional weakness.
The percentage of S&P 500 stocks trading above the 50-day moving closed Friday at 49.2% from an intraday high of 50.69%. Continued closes above the 50% level would be bullish for a possible run towards 55%-60% with the latter representing the monthly high.
Support is at the 45%-40% level with risk to 35%-30% on a close below the latter. Last week’s low tapped 33.13%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 53.39% with Friday’s low reaching 51.45%. Upper support at 50%-45% held with last week’s low reaching 46.60%.
A close below latter could lead to a possible retest of 40% and early July 2016 levels. Resistance is at 55%-60%.
We are allocating the portfolio as follows:
30% in STX closed on Friday at 59.52
30% in ADBE closed on Friday at 221.90
30% in INTC closed on Friday at 52.73
10% in TMF closed on Friday at 18.10
Option Traders.. the following (regular monthly) options meet our criteria:
STX – JUN 57.5 CALLS (Expiration Date June 15, 2018)
ADBE – JUL 220 CALLS (Expiration Date July 20, 2018)
INTC – JUN 50 CALLS (Expiration Date June 15, 2018)
TMF – AUG 18 CALLS (Expiration Date August 17, 2018)
All the best,
Roger.