U.S. markets ended the week on a sour note as a plunge in oil prices and uneasiness about the housing market resurrected fears of an uncertain path for the economy, both here and abroad.

Oil is near its lowest level in eight months after dipping below the $60 level for the first time since February.

The damage was mostly limited as the major indexes closed off their lows while finishing higher for the week. However, the weakness in Tech and the small-caps remain a concern.

The Russell 2000 sank 1.8% after testing a low of 1,539.

Fresh and upper support at 1,540-1,535 held with a close below the latter being a very bearish development. Note: A death cross is close to forming with the 50-day moving average in danger of falling below the 200-day moving average.

This is typically a bearish signal for lower lows.

The Nasdaq plummeted 1.7% following the pullback to 7,349.

Prior and upper support at 7,350-7,300 was breached on the close back below the 200-day moving average.

For the week, the Nasdaq eked out a 0.7% gain while the Russell 2000 climbed 0.1%.

The S&P 500 dropped 0.9% while bottoming at 2,764. Upper support at 2,800-2,775 was breached with the 200-day moving average holding into the closing bell.

The Dow was lower by 0.8% after testing a midday low of 25,882.

Fresh and lower support at 26,000-25,800 and the 50-day moving average held on the close below the former.

The Dow was up 2.8% for the week and the S&P 500 added 2.1%.

Consumer Staples rose 0.5% to led sector strength. Utilities and Real Estate edged up 0.2% and 0.1%.

Communication Services tanked 2.1% to pace sector weakness while Technology was hammered for a 1.7% loss.

For the week, Real Estate and Utilities surged 3.7% and 3.2%, respectively, while Consumer Staples jumped 3.1%.

Communication Services was the only laggard after giving back 1%.

Third-quarter earnings season is coming to a close with nearly 85% of the S&P 500 companies having announced their numbers.

Total earnings for the 419 S&P 500 members that have reported results are up 26.6% from the same period last year on 8.9% higher revenues, with 79% topping EPS estimates and 63.2% beating revenue estimates.

Looking at Q3 as a whole, total earnings for the index are expected to be up 24.8% from the same period last year on 8.1% higher revenues. This would mark the 6th time in the last 7 quarters double-digit earnings growth has been achieved.

For the small-cap S&P 600 index, we now have Q3 results from 76% of its members.

Total earnings for the 458 small-cap companies are up 27.3% on 8.2% higher revenues, with 65.3% beating EPS estimates and 61.4% topping revenue estimates.

For the small-cap index as a whole, total Q3 earnings are expected to be up 22.6% from the same period last year on 7.1% higher revenues.

The Finance sector, which is an even bigger earnings contributor to the small-cap index compared to the S&P 500 index, is expected to see 43% higher earnings on 7.6% higher revenues.

Estimates for the current period (2018 Q4) have been coming down, with the current 14.1% earnings growth expected for the period down from 15.9% at the start of the quarter.

For full-year 2018, total earnings for the S&P 500 index are expected to be up 21% on 6.5% higher revenues. For full-year 2019, total earnings are expected to be up 9.1% on 5.6% higher revenues.

The implied ‘EPS’ for S&P 500, calculated using the current P/E of 17.4X and the recent index close, is $158.15.

Using the same methodology, the index ‘EPS’ works out to $172.57 for 2019 (P/E of 16X) and $188.53 for 2020 (P/E of 14.6X).

The multiples for 2018, 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

Overall, the earnings picture remains solid, but some points of weakness have started showing up.

A strong dollar, freight inflation, trade issues and economic weakness abroad could weigh on estimates for the coming periods.

Global Economy – European markets were mixed on Italian political risks as Deputy Prime Minister Di Maio signaled Italy won’t budge in its budget projections as it prepares to reply to the European Commission by this upcoming Tuesday’s deadline.

UK’s FTSE 100 and France’s CAC 40 were down 0.5% while the Stoxx 600 Europe fell 0.4%. Germany’s DAX 30 was up 2 points, or 0.02%, and the Belgium20 added 0.1%.

UK Q3 GDP rose 0.6% quarter-over-quarter and 1.5% year-over-year, both matching expectations.

UK Q3 total business investment fell 1.2% quarter-over-quarter, weaker than forecasts for a rise of 0.2%.

UK September manufacturing production rose 0.2%, topping estimates of 0.1%.

September industrial production was unchanged, stronger than expectations for a dip of 0.1%.

Asian markets were weak after China’s banking and insurance regulator announced credit support for the private sector.

Hong Kong’s Hang Seng tanked 2.4% and China’s Shanghai sank 1.4%.
Japan’s Nikkei dropped 1.1% and South Korea’s Kospi declined 0.3%. Australia’s S&P/ASX 200 slipped 0.1%.

China October CPI rose 2.5% while PPI rose 3.3% year-over-year, both matching expectations.

October PPI surged 0.6%, topping estimates of 0.2%, with the core rate expanding 0.5%. The 12-month PPI pace accelerated to 2.9% year-over-year from 2.6%, while the core grew at a 2.6% pace versus 2.5%.

Goods prices rose 0.6% following a 0.1% dip in September, the energy component jumped 2.7% after a 0.8% drop and food prices were 1% firmer following a 0.6% decline.

Services prices grew 0.7% on following a 0.3% gain.

Consumer Sentiment Index checked in at 98.3, above estimates of 98. The current condition edged up to 113.2 in November from a final 113.1 in October.

The expectations index declined to 88.7 from a final 89.3. The 12-month inflation index slipped to 2.8% from a 2.9% rate in October while the 5-year price gauge climbed to 2.6% from 2.4%.

September Wholesale Trade Inventories up 0.4%, topping forecasts of 0.3%.

Atlanta Fed’s Q4 GDPNow estimate was unchanged at 2.9% compared to the 2.7% Blue Chip consensus.

Baker-Hughes ports that the U.S. rig count was up 14 rigs from last week to 1,081, with oil rigs up 12 to 886 and gas rigs up 2 to 195.

The U.S. Rig Count is up 174 rigs from last year’s count of 907, with oil rigs up 148 and gas rigs up 26. The U.S. Offshore Rig Count is up 3 rigs to 21 and up 3 rigs year-over-year.

Market Sentiment – Fed VC of supervision Randal Quarles said he is in favor of removing the qualitative objections from annual bank stress tests, which would make rule requirements more predictable for banks.

He said the Fed will be reconsidering portions of the April stress test capital buffer proposal after industry concerns.

The iShares 20+ Year Treasury Bond ETF (TLT) remains in a choppy pattern after reaching an intraday high of $113.50.

Fresh and lower resistance at $113.50-$114 was tapped but held into the closing bell.

Rising but shaky support is at $112.75-$112.25. A close below the latter would be a bearish development for lower lows towards $111.50-$110.

RSI is in a slight uptrend with resistance at 50 and the October peak.

Continued closes above this level would be a bullish signal. Support is at 40.

Market Analysis – The PowerShares QQQ (QQQ) was down for a 2nd-straight session after tapping a low of $170.16.

Near-term support at $170-$169.50 held with the close back below the 200-day moving average being a slightly bearish signal. A move below $168 will likely signal a near-term top.

Lowered resistance is at $172.75-$173.25 with additional hurdles at $175-$175.50.

RSI is back in an downtrend with support at 45-40.

A move below the latter would signal additional weakness with risk to 35-30. Resistance is at 50.

The Health Care Select Sector Spider (XLV) pulled back for the first time in 5 sessions after testing a low of $92.50.

Fresh support at $92-$91.50 and the 50-day moving average held with a close below $91 signaling additional weakness and a possible short-term top.

Near-term resistance is at $93.50-$94.

Continued closes above the latter would be a bullish development for a run towards $96 and fresh all-time highs.

RSI could be rolling over after failing resistance at 60 and early October support.

Continued closes back above the latter would be a bullish development. Support is at 55-50 with a move below the latter signaling additional weakness.

The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 46.12% with the low reaching 40.55%. Fresh support at 40% held with a move below the this level likely leading to a quick retest to 35%-30%.

Resistance is at 50% with the prior session high tapping 50.89%. Continued closes above the 50% level would be a bullish development for additional strength.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average at 49.01% with the session low reaching 47.05%.

Fresh and upper support at 47.50%-45% held with a move below the latter signal additional weakness towards the 40% area.

Resistance is at 52.50% with the midweek peak reaching 52.42%.

Continued closes above this level would signal additional strength towards 55%-60% and would be a bullish development.

Existing Position Update

Weakness persists.

Stocks flirting again with the 50 day line.

Expect minor congestion around current area.

Interest rate high priced into current market cycle.

Global tension not rising too much.

Apple will exercise automatically since both strikes are in the money.

Markets should see bounce in the near term.

Roger Scott