U.S. markets showed continued strength on Friday with the major indexes capping off their best week of the year despite an underwhelming jobs report.
However, the lousy news helped support the case for the Fed to ease interest rates in the near future, on worries the U.S. economy is decelerating as trade tensions with Mexico and China persist.
One bearish signal was the fact volatility closed higher and remains trapped between its 50/200-day moving averages.
This was easily penciled-in ahead of the weekend with looming tariffs on Mexico in place for Monday.
The good news is this issue was resolved after the market closed as President Trump announced a signed agreement with Mexico and the tariffs were indefinitely suspended.
The S&P 500 rose 1.1% after making a run to intraday to 2,884. Fresh and lower resistance at 2,875-2,900 was split but held on the close just above the 50-day moving average.
The Dow gained 1% to extend its winning streak to 5-straight sessions while testing a high of 26,072.
Prior and lower resistance from mid-May at 26,000-26,250 and the 50-day moving average was cleared with the blue-chips closing just below these levels.
The Nasdaq extended its winning streak to 4-straight sessions after adding 1.7% while topping out at 7,767 shortly after open.
Prior and lower resistance from mid-May at 7,750-7,800 was cleared and held with more important hurdles at 7,850 and the 50-day moving average.
The Russell 2000 snapped a 2-session losing streak after rising 0.7% with the intraday high reaching of 1,518.
Near-term and lower resistance at 1,510-1,525 was cleared and held with a close above the latter getting 1,540-1,555 and the 200/50-day moving averages in play.
For the week, the Nasdaq surged 3.9% and the Russell 2000 rallied 3.3%. The Dow zoomed 4.7% and the S&P 500 soared 4.4%.
Technology and Communication Services were higher by 1.6% and 1.3% to lead sector strength.
Utilities and Financials were the only sector laggards after giving back 0.7% and 0.2%, respectively.
The best performing sectors for the week included Materials (6.9%), Technology (6%), Consumer Staples (5.4%) and Industrials (5.1%). Communication Services was the only sector that closed lower (-2.1%).
Global Economy – European markets closed higher after British Prime Minister Theresa May officially resigned as leader of the U.K.’s Conservative Party.
She will maintain her position as PM until a replacement is elected.
France’s CAC 40 rose 1.6% and UK’s FTSE 100 was up 1%. The Stoxx 600 advanced 0.9% and Germany’s DAX 30 was higher by 0.8%.
The Belgium20 climbed 0.5%.
Asian markets were higher in limited action with China’s Shanghai and Hong Kong’s Hang Seng closed for a holiday.
Australia’s S&P/ASX 200 jumped 1% and Japan’s Nikkei gained 0.5%. South Korea’s Kospi edged up 0.2%.
Non-farm payrolls increased 75,000 in May, well below forecasts of 180,000. The unemployment rate was steady at 3.6% versus expectations for a print of 3.7%. Average hourly earnings were up 0.2%, as in April, for a 3.1% year-over-year clip versus 3.2% previously.
Average hours worked held at 34.4 from 34.4. The labor force bounced 176,000 from -490,000, with household employment up 113,000 from -103,000.
The labor force participation rate was unchanged at 62.8%. Private payrolls were up 90,000, with the goods producing sector adding 8,000, construction up 4,000, and manufacturing up 3,000.
Jobs in the service sector increased 82,000 with a 27,000 gain in health and a 26,000 increase in leisure, while retail trade employment dropped 8,000, with IT down 5,000. Government jobs declined 15,000.
Wholesale Trade sales dropped 0.4% in April, with inventories up 0.8%, topping expectations for a rise of 0.3% for both.
The 2.3% surge in March sales was revised down to a 1.8% gain, while the -0.1% inventory slip was revised up to unchanged. Sales are were 2.7% year-over-year while inventories are rising at a 7.6% year-over-year rate. The inventory-sales ratio rose to 1.34 from 1.33.
Baker-Hughes reported the U.S. rig count was down 9 rigs to 975, with oil rigs down 11 to 789, gas rigs up 2 to 186, and miscellaneous rigs unchanged at 0.
The U.S. Rig Count is down 87 rigs from last year’s count of 1,062, with oil rigs down 73, gas rigs down 12, and miscellaneous rigs down 2. The U.S. Offshore Rig Count was unchanged at 23 and is up 3 rigs year-over-year.
The Philly Fed’s Livingston Survey showed an upward bump in growth estimates to a 2.5% clip for first half of 2019, versus the 2.4% projection from December.
Forecasters are also estimating a steady 2.3% growth rate over the second half of 2019. Inflation is expected to remain soft, with CPI seen at an annual average of 2% this year, versus the prior 2.2% forecast.
The participants see the 3-month bill rate at 2.38% this month, and 2.40% over the rest of the year and through 2020, while the 10-year is estimated at 2.48% for June, and rising to 2.69% by the end of the year.
Consumer Credit climbed $17.5 billion in April after March’s $11 billion increase. Nonrevolving credit rose $10.5 billion, after the prior $13 billion gain.
Revolving credit rebounded $7 billion after falling $2 billion the prior month.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after kissing a high of $132.07.
Prior and lower resistance at $132-$132.50 was cleared but held with continued closes above the latter getting fresh 52-week peaks in play.
Rising support remains at $131.50-$131. A close below $130 would signal a near-term top.
RSI is back in an uptrend with resistance at 75-80.
The latter represents the recent peak and signals overbought levels. Support is at 70-65 with a move below the latter likely leading to additional weakness.
Market Analysis – The Russell 3000 Index ($RUA) closed in positive territory for the 4th-straight session following the intraday run to 1,695.
Lower resistance at 1,675-1,700 and the 50-day moving average was cleared and held. Continued closes above the 1,700 level gets 1,725-1,750 in play with the late April and 52-week peak at 1,743.
Rising support is at 1,675-1,650.
A move below the latter and the 200-day moving average would signal another near-term top with further risk towards 1,625-1,600.
RSI is in an uptrend with resistance at 60 and prior support from early May.
A move back above this level would be an ongoing bullish signal with fresh hurdles at 65-70 with the latter representing the high throughout April.
Communication Services (XLC) also extended its winning streak to 4-straight session after trading to a high of $47.73.
Near-term and lower resistance at $47-$47.50 held with more important hurdles at $48.50 and the 50-day moving average holding.
A close back above $49 would signal that a near-term bottom is in.
Fresh support is at $47-$46.50 and the 200-day moving average.
A close below the latter would signal a false breakout with additional weakness towards $46-$45.50 and lows from earlier this month.
RSI is showing strength with resistance at 50. A move above this level would be an ongoing bullish development for additional strength towards 55-60 and the latter representing the early May peak.
Support is at 45-40 with a move below this level getting 35-30 back in focus.
The percentage of S&P 500 stocks trading above the 200-day moving average closed Friday at 60.91% with the session high tapping 61.90%.
Lower resistance from mid-May at 60%-62.5% was cleared and held. This was a bullish signal with a close the latter signaling additional strength towards 65%-67.5%.
Current support is at 57.5%-55%. A close back below the latter would be a slightly bearish development with risk towards 52.5%-50% and late May lows.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 43.68% with the session high reaching 45.63%.
This compares to last week’s close at 20.38% that signaled oversold levels. Near-term resistance at 45%-47.5% held i to the closing bell.
A move above the 50% level signaling would signal additional strength towards 52.5%-55% with the latter holding since early May. Rising support is at 42.5%-40% with backup help at 37.5%-35%.
We are allocating the portfolio as follows:
30% in CERN closed on Friday at 72.74
30% in PYPL closed on Friday at 113.75
30% in XRAY closed on Friday at 55.94
10% in TMF closed on Friday at 24.54
Option Traders – the following (regular monthly) options meet our criteria:
CERN – 20SEP19 $70 Strike Price CALL (Expires September 20, 2019)
PYPL – 20SEP19 $110 Strike Price CALL (Expires September 20, 2019)
XRAY – 17JAN20 $55 Strike Price CALL (Expires January 17, 2020)
TMF – 15NOV19 $25 Strike Price CALL (Expires November 15, 2019)
All the best,