U.S. markets closed mostly higher on Friday following a strong jobs report and positive comments on trade by House National Economic Council director Larry Kudlow.

He said President Trump is optimistic about the prospect of a trade agreement with China following the good vibe of trade talks.

The Dow rose 0.3% after testing a high of 25,193.

Fresh and lower resistance at 25,250-25,500 held on the 2nd-straight close above the 200-day moving average.

The S&P 500 edged up 0.1% following morning run to 2,716.

Lower resistance at 2,725-2,750 held with a move above the latter and the 200-day moving average signaling additional strength.

The Dow added 1.3% for the week and the S&P rose 1.6%.

For Janaury, the indexes jumped 7.2% and 7.9%, respectively.

The Russell 2000 gained 0.2% after trading to a midday high of 1,504.

Fresh and lower resistance at 1,500-1,510 was cleared and held with continued closes above the latter getting 1,525-1,535 in play.

The Nasdaq slipped 0.3% following the late day dip to 7,263. Fresh support at 7,250-7,200 held with a move below the latter being a slightly bearish signal.

For the week, the Nasdaq was up 1.4% and the Russell 2000 gained 1.5%.

For the month of January Tech rose 9.7% and the small-caps surged 10.3%

Energy soared 1.7% to led sector strength. Technology and Financial were higher by 0.6% and 0.4%, respectively.

Comsumer Discretionary was the weakest sector after giving back 1.5%.

Real Estate and Utilities fell 0.6% and 0.4%.

Financials and Technology slipped 0.2% and 0.1% to round out the laggards.

For the week, Energy zoomed 3.2% and Consumer Staples jumped 2.9%. There were no sector laggards.

Results from 235 S&P 500 members are already out, with the trends established most likely carrying through the rest of the 4Q reporting cycle.

Although growth is decelerating, this isn’t a surprise, as as Q4 growth would be materially below the pace set in the first three quarters of last year.

Total earnings for companies that have reported are up 13.7% from the same period last year on 6.7% higher revenues.

Earnings and revenue growth for the same companies had been 23.5% and 9.8% in the preceding earnings season, respectively.

Additionally, out of the companies that have reported results already, 66.8% are beating EPS estimates and only 63.4% are beating revenue estimates.

For the same companies, the proportion of positive EPS and revenue surprises was 77.9% and 62.1% in the Q3 earnings season, respectively.

Earnings growth is expected to be in double digits in a number of sectors, with Energy (+90.5% growth), Finance (+17.4%), Construction (+23%) and Transportation (+29.3%) as the strongest growth.

Tech sector earnings are expected to decelerate meaningfully in Q4, up 5.9%, after back-to-back quarters of very strong growth.

For Q4 as a whole, combining the actual results from the 235 index members that have reported with estimates for the still-to-come 265 companies, total earnings for the S&P 500 index are expected to be up 12.8% from the same period last year on 5.9% higher revenues.

This would follow the 25.7% earnings growth on 8.5% higher revenues in 2018 Q3.

Global Economy – European markets settled mostly higher despite disappointing economic news.

UK’s FTSE 100 advanced 0.7% while France’s CAC 40 and the Belgium20 were up 0.5%. The Stoxx 600 Europe added 0.3% and Germany’s DAX 30 was climbed 0.1%.

UK January Manufacturing PMI for January was at 52.8, missing estimates of 53.5.

Inflation slowed in the 19 countries sharing the euro to 1.4% in January, from 1.6%.

Asian markets settled mixed on Friday.

China’s Shanghai rallied 1.3% and Japan’s Nikkei gained 0.1%. South Korea’s Kospi dipped 0.1% and Hong Kong’s Hang Seng fell 12 points, or 0.04%.

Australia’s S&P/ASX 200 dipped 2 points, 0.03%.

The Caixin/Markit Manufacturing Purchasing Managers’ Index checked in at 48.3 in January, missing forecasts of 49.5.

China’s PMI survey came in at 49.5 for January, topping forecasts of 49.3, and the 49.4 reported in the previous month.

Nonfarm Payrolls climbed another 304,000 in January, topping forecasts of 200,000. This follows a revised 222,000 jump in December, while November was bumped to up 20,000 to 196,000 from 176,000.

The unemployment rate rose to 4% from 3.9% and likely due to the government shutdown. Earnings rose 0.1% versus 0.4%, though the annual rate slowed slightly to 3.2% year-over-year from a revised 3.3% gain in December.

The workweek was unchanged at 34.5.

The labor force dipped 11,000 after climbing 419,000 previously. Household employment dropped 251,000 versus the 142,000 gain.

The labor force participation rate edged up to 63.2% from 63.1% and is the highest since 2013. Private payrolls were up 296,000 with ADP 213,000.

Construction surged 52,000 and manufacturing was up 13,000.

The service sector added 224,000 jobs, with leisure up 74,000 and education 55,000 higher, while government inched up 8,000, including a 1,000 from the Federal side.

January PMI Manufacturing Index edged up 1.1 points to 54.9, matching estimates, and nearly erasing the the 1.5 point decline in December to 53.8.

The index was at 55.5 a year ago.

The report noted the January index signals a strong and faster improvement in the overall health of the sector, and was above the long-run series average.

January ISM Manufacturing Index added 2.3 points to 56.6, better than forecasts of 54, and follows the 4.5 point December drop to 54.3.

The employment index dipped 0.5 ticks to 55.5 versus 56 while new orders bounced 6.9 points to 58.2 from 51.3. New export orders fell a point to 51.8 from 52.8.

Supplier deliveries slid 2.8 ticks to 56.2 from 59 from 57.5 while prices paid dropped 5.3 points to 49.6 from 54.9.

January Consumer Sentiment tumbled 7.1 points to 91.2, but topping expectations for a print of 91.4. The current conditions index was 108.8 from 116.1 in December. The expectations component was at 79.9 versus 87.

The 12-month inflation gauge checked in at 2.7% from December’s 2.7%, with the 5-year price index at 2.6% from 2.5% to end 2018.

Atlanta Fed’s Q4 GDPNow estimate was cut to 2.5% from 2.7% previously, and is now below the Blue Chip consensus.

November Construction Spending was up 0.8%, topping estimates for a rise of 0.2% for the month. It was the first increase since July’s 0.2% gain.

Residential construction was up 3.4% from October’s -1.1%. Nonresidential spending fell 1% after a 1 gain, previously.

Private spending was up 1.3% versus -0.3% while public spending fell 0.9% versus October’s 1.5% rise.

November Wholesale Trade Inventories up 0.3%, slightly below forecasts of 0.4% for the month, with sales falling 0.6%.

The inventory outperformance increased the inventory-sales ratio to 1.29 from 1.28.

Baker-Hughes Rig Count reported the U.S. rig count was down 14 rigs from last week to 1,045 rigs, with oil rigs down 15 to 847 and gas rigs up 1 to 198.

The U.S. Rig Count is up 99 rigs from last year’s count of 946, with oil rigs up 82 and gas rigs up 17.

The U.S. Offshore Rig Count is down 1 rig to 19 and up 3 rigs year-over-year.

Market Sentiment – Fed governor Lael Brainard stuck to the script on community reinvestment, with potential changes of regulations aimed at promoting more banking in under served areas advisable.

She made no further references to the current economy or monetary policy.

Dallas Fed Robert Kaplan warned against cutting immigration which he said would hurt U.S. GDP growth, while trade with Mexico has meant job gains in the U.S.

Herman Cain, potential candidate for a Fed board seat, meanwhile said that analysts shouldn’t be afraid of inflation, but more concerned about deflation, and he would bring a business perspective to the Fed.

St. Louis Fed James Bullard downplayed the trend growth in jobs a bit, saying it was a bit of a backward signal and he’s very pleased with the recent changes to the Fed’s policy stance with a flat horizon.

On the FOMC decision, Bullard said it was a very good decision and it sets up the Fed for a very good couple of years going forward.

On the economy, he said there is a near universal view that the 3% growth rate will have to slow down, though it doesn’t mean anything bad for the economy.

Bullard went on to say the Fed will run a “floor” system so the funds rate will trade right at the point where reserves are satiating the system.

Regarding the global situation, he said it’s not been as robust as hoped, especially Europe, while adding China is also growing more slowly than anticipated.

Bullard said there are a long list of worries for the Fed, including negotiations with China and Brexit.

The feedback from tight labor markets to inflation has been weak, and he thinks the unemployment rate can fall a long way, “way down” before inflation picks up.

The iShares 20+ Year Treasury Bond ETF (TLT) pulled back after testing a low of $120.96.

Fresh and upper support at $121-$120.50 was breached and failed to hold with a close below $120 signaling further weakness.

Lowered resistance is at $121.50-$122.

The golden cross that formed in mid-January with the 50-day moving average crossing above the 200-day moving average is a bullish signal for higher highs.

RSI is back in a slight downtrend with support at 55-50.

A move below the latter would signal additional weakness. Resistance is at 60.

Market Analysis – The Invesco QQQ Trust (QQQ) had its 2 session winning streak snapped following the pullback to $166.99.

Fresh support at $167-$166.50 held with a move below the latter signaling a possible retest towards $165-$162.50.

Near-term resistance is at $168.50-$169 with additional hurdles at $170-$170.50 and the 200-day moving average.

RSI is flatlining with support at 60.

A close below this level would signal additional weakness towards 55-50 with the latter representing major support throughout July.

Resistance is at 65.

Communication Services (XLC) closed lower for the first time in 3 sessions on the backtest to $45.91. Fresh and upper support at $46-$45.50 failed to hold with a move below $45 signaling a possible near-term top.

Near-term and major resistance is at $46.50 and the 200-day moving average.

Continued closes back above these levels would be a bullish signal for a possible push towards $48 and early October resistance.

RSI has leveled out with support at 60. A close below this level would be a slightly bearish development with risk towards 55-50.

Resistance is at 65-70 with the latter representing the July peak.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 53.39% with the session high reaching 55.33%.

Lower resistance at 55%-57.50% held.

A move above the latter would be a bullish development and signal additional strength towards 60% and late September/ early October support.

Current support is at 52.50%-50%.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 83.96% with the session high tapping 85.34%.

July 2016 resistance at 85%-90% held with a close above the latter signaling additional momentum. However, overbought levels are in play with current support at 80%-77.50%.

A move below the latter would be a bearish signal for additional weakness.

Existing Position Update

We are biased towards the upside.

I’m hoping we see a bit more upside so that we can cap the positions with bear call spreads moving the other way.

Waiting to see strong overbought price levels before jumping in.

No clear sense of market direction at this time and markets may become slightly choppy in the days ahead.

China is going to be the major catalyst next few weeks.

Roger Scott.