U.S. markets traded in a tight range on Friday before showing late day strength while closing out the best week of the year with strong gains. Much of the early choppiness came on chatter from the G-20 summit on how things might be progressing in trade talks between the U.S. and China.

The major indexes cleared the previous session highs and the action is showing the market is anticipating some sort of deal, or at least a truce on further tariffs.

Volatility also continues to show signs the market could be on the verge of a continued breakout with major resistance levels holding throughout the past week.

The S&P 500 soared 0.8% following the late day push to 2,760.

Fresh and lower resistance at 2,760-2,775 and the 50-day moving average was challenged with a close above the latter and the 200-day moving average being a continued bullish development.

The Dow was also up 0.8% after testing a session high of 25,549.

Lower resistance at 25,550-25,750 and the 50-day moving average held with a move above the latter signaling additional strength.

For the week, the Dow was up 5.2% while the S&P 500 rallied 4.9%, with monthly gains of 1.7% and 1.8%, respectively.

The Nasdaq closed for the 4th-time in 5 sessions after rising 0.8% and kissing a high of 7,332.

Fresh and lower resistance at 7,350-7,400 held with a close above 7,475-7,525 being a continuing bullish development.

The Russell 2000 was up for the 5th-time in 7 sessions after adding 0.5% and reaching a peak of 1,535.

Lower resistance at 1,535-1,550 held for the 2nd-straight session with a close above the latter signaling additional momentum.

The Nasdaq was higher by 5.6% for the week and 0.3% for the month while the Russell 2000 rose 3.1% on the week and 1.4% in November.

Utilities and Healthcare led sector strength after jumping 1.5% and 1%. Industrial, Real Estate and Technology rose 1%.

Communication Services and Consumer Staples were the only sector laggards after losing 0.2%.

For the week, Healthcare and Technology zoomed 7% and 6%, respectively.

Consumer Discretionary surged 5.9% and Communication Services rallied 4.9%. There were no sectors that closes lower for the week.

The Q3 earnings season is rapidly winding down, with results from 98% of the S&P 500 members reporting numbers.

Total earnings for these companies are up 25.5% from the same period last year on 8.4% higher revenues, with 78.7% topping EPS estimates and 64.3% beating revenue estimates.

Looking at Q3 as a whole, total earnings for the index are expected to be up 25.4% from the same period last year on 8.3% higher revenues, the 6th time in the last 7 quarters of double-digit earnings growth.

For the small-cap S&P 600 index, we now have Q3 results from 561 index members or 93.3% of its members.

Total earnings for these small-cap companies are up 36.3% on 7.4% higher revenues, with 59% beating EPS estimates and 62% topping revenue estimates.

For the small-cap index as a whole, total Q3 earnings are expected to be up 33.9% 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 36.8% higher earnings on 7.1% higher revenues.

Estimates for the current period (2018 Q4) have been coming down, with the current 12.9% earnings growth 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 20.9% on +6.7% higher revenues. For full-year 2019, total earnings are expected to be up 8.3% on 5.4% higher revenues, with 2019 estimates steadily coming down.

The implied ‘EPS’ for the index, calculated using a 2018 P/E of 16.9X and recent index close, is $158.29.

Using the same methodology, the index ‘EPS’ works out to $171.40 for 2019 (P/E of 15.6X) and $188.23 for 2020 (P/E of 14.2X).

Global Economy – European markets were lower across the board on signs of slower economic growth.

UK’s FTSE 100 dropped 0.8% and Germany’s DAX 30 gave back 0.4%.
The Stoxx 600 Europe was off 0.2% while the Belgium20 and France’s CAC 40 slipped 0.1%

Eurozone November CPI was up 2% year-over-year, matching expectations while November core CPI rose 1%, missing estimates of 1.1%.

The Eurozone October unemployment rate was unchanged at 8.1%, versus forecasts of 8%.

German October retail sales fell 0.3%, versus expectations of 0.4%.

Asian markets closed mixed despite optimism a wider trade conflict between the U.S. and China can be averted after President Trump said he is very close to doing something with China.

China’s Shanghai rose 0.8% and Japan’s Nikkei added 0.4%. Hong Kong’s Hang Seng was up 0.2%. Australia’s S&P/ASX 200 sank 1.6% and South Korea’s Kospi was off 1%.

The China November manufacturing PMI slipped 0.2 to 50, missing estimates of no change at 50.2.

Japan November consumer confidence dipped 0.1 to 42.9, versus forecasts of 43.2.

Japan October industrial production rose 2.9%, topping expectations of 1.2%.

The Japan October jobless rate checked in at 2.4%, missing forecasts of no change at 2.3%. The October job-to-applicant ratio slipped 0.02 to 1.62, versus expectations of 1.65.

Chicago PMI jumped 8 points to 66.4 in November, topping forecasts for a print of 60. The 3-month moving average was 61.7 versus 60.8.

Baker-Hughes reported the U.S. rig count was down 3 rigs from last week to 1,076, with oil rigs up 2 to 887 and gas rigs down 5 to 189.

The U.S. Rig Count is up 147 rigs from last year’s count of 929, with oil rigs up 138 and gas rigs up 9.

The U.S. Offshore Rig Count is down 2 rigs to 23 and up 3 rigs year-over-year.

Market Sentiment – New York Fed John Williams warned inflation expectations could slip if the Fed sticks with the current 2% target regime, arguing for adopting an average inflation or price level targeting framework.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after tapping a high of $115.42. Fresh and lower resistance at $115.50-$116 was challenged with continued closes above the latter being a bullish development for higher highs.

Rising support is at $115-$114.50.

A move below the latter and the 50-day moving average would be a slightly bearish signal.

RSI is approaching resistance and the monthly highs near 60.

Continued closes above this level would signal additional strength. Support is at 55-50 with the latter holding throughout much of November.

Market Analysis – The Russell 3000 Index ($RUA) was up for the 4th time in 5 sessions following the intraday run to 1,626. Lower resistance at 1,625-1,640 was cleared and held.

Continued closes above the latter and the 50/200-day moving averages would be a more bullish development as a death cross has officially formed. The last time this technical pattern occurred was in August 2015 with significant lows afterwards into 2016.

Support is at 1,605-1,590. A close back below 1,580 would be a bearish development and signal a near-term top.

RSI is in a slight uptrend with resistance at 55.

Continued closes above this level would be a bullish development for a run towards 60-70. Support is at 50-45 with a move below the latter signaling additional weakness.

The Dow Jones Transportation Average ($TRAN) closed higher for the 6th-time in 7 sessions following the push to 10,834. Mid-October and lower resistance at 10,800-10,900 was cleared and held on the close back above the 200-day moving average.

Continued closes back above the 11,000 level would be a more bullish development and would help level out the recent death cross that has formed.

Support is at 10,700-10,600 and the 50-day moving average. A move below 10,500 would signal a possible near-term top.

RSI is back in an uptrend with resistance at 60. Continued closes above this level would signal additional momentum towards 65-70. Support is at 55-50.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 47.57% with the high reaching 48.54% for the 2nd-straight session.

Early November resistance at 49%-51% held with a move above the latter signaling additional strength towards 52.50%-55%. The latter represents early October support.

Current support is at 45%-42.50% with a move below the latter being a slightly bearish signal.

The percentage of S&P 500 stocks trading above the 50-day moving average closed at 55.86% and the session high.

Fresh resistance is at 57.50%-60% with the latter representing late September and early October peaks.

Support is at 50%-47.50% with a move below the latter signaling a possible near-term top for the index.

Daily Update

Strength from overall market pushing bull puts higher.

Want to have some balance between bullish and bearish side since we may be seeing congestion over the near term.

I’m looking at AMZN over the near term – bear call side.

Few more stocks that may trade higher including health care.

Next week should be interesting.

Roger Scott.