U.S. markets were choppy into the final couple of hours of trading before finishing with another round of steep losses on Friday.

After tweeting that he was considering a veto to the proposed omnibus spending bill, which was passed by Congress, President Trump announced the signing of the bill, noting that he was unhappy with a lot of what was in it.

The market’s reaction was much of the same as the major indexes suffered their worst weekly losses since January 2016.

The Nasdaq got hammered for 2.4% after bottoming at 6,992 to close below its 100-day moving average and the 7,000 level for the first time since mid-February. For the week, the index declined 6.5% but is still up 89 points, or 1.3%, year to date.

The Russell 2000 was tackled with a 2.2% loss after trading down to 1,508 into the closing bell. The index also closed below its 100-day moving average after giving back 5.1% for the week and is down just over 25 points, or 1.7%, for 2018.

The Dow gave back 1.8% after testing to a low of 23,509 while holding the February 9th intraday low of 23,360. The index fell 5.7% over the week and is now down nearly 5% since the start of the year.

The S&P 500 dropped 2.1% after tapping a low of 2,585 and coming within a point of breaching its 200-day moving average. For the week, the index lost 6% and is down 3.2% for the year.

Financials and Technology led sector weakness after sinking 3% and 2.7%, respectively. Health Care tumbled 2.1% while Consumer Discretionary and Materials stumbled 2%. There were no sectors that closed in positive territory.

For the week, Technology and Financial slumped 7.7% and 7.1%, respectively. Health Care was down 6.7%. Energy slipped 0.8% and was the closest sector to showing a gain for the week.

With 4Q earnings season in the books, it’s time to look ahead to 1Q earnings that will begin in early April.

Total Q1 earnings for the S&P 500 index are expected to be up 15.9% from the same period last year on 7.3% higher revenues. This would follow 13.5% earnings growth on 8.5% revenue growth in the preceding period.

Earnings growth is expected to be up double-digits in a number of sectors, including Technology and Finance. These two sectors alone account for more than half of all estimate upgrades since the quarter got underway.

Energy sector earnings are expected to be up 60.8% from the same period last year on 15.7% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from 15.8% to 14.4%.

Earnings estimates for Q1 and the following quarters have gone up in a notable way, with tax law changes as the most notable reason for the positive revisions. Estimates have gone up the most for the Materials, Energy and Industrials.

For the S&P 600 index, total Q1 earnings are expected to be up 13.8% from the same period last year on 7.2% higher revenues. This would follow 15.2% earnings growth on 6.8% revenue growth in the preceding quarter.

For full-year 2018, total earnings for the S&P 500 index are track to be up 18% on 5.6% higher revenues, with full-year 2019 earnings and revenues for the index expected to be up 9.5% and 4.1%, respectively.

The implied EPS, earnings per share, for the S&P 500 index, calculated using current 2018 P/E of 18.1X and index close, as of March 22nd, is $160. Using the same methodology, the index EPS works out to $175.32 for 2019 (P/E of 15.1X).

Global Economy – European markets showed continued losses after the Bank of England signaled that it’s looking at a potential interest-rate hike as U.K. wage growth improves.

Germany’s DAX 30 dropped 1.8% and France’s CAC 40 was lower by 1.4%. The Belgium20 gave back 1.1% while the Stoxx Europe was lower by 0.9%. UK’s FTSE 100 fell 0.4%.

U.K. retail sales rebounded 0.8% in February, compared with a monthly decline of 0.2% in January, and twice the pace expected.

Asian markets were crushed after reacting negatively to the Trump administration’s import tariffs, covering about $60 billion in goods.
Japan’s Nikkei plummeted 4.5% and South Korea’s Kospi slumped 3.2%.

China’s Shanghai sank 3.4% while Hong Kong’s Hang Seng gave back 2.5%
Australia’s S&P/ASX 200 was down 2%.

Japan February national CPI rose 1.5% year-over-year, matching expectations. February national CPI ex-fresh food & energy rose 0.5% year-over-year, also matching forecasts.

Durable Goods Orders, excluding aircraft, jumped 1.8% in February, the biggest gain in five months and followed a downwardly revised 0.4% decrease in January. Shipments of core capital goods increased 1.4% in February, following an upwardedly revised 0.1% gain in January.

February New Home Sales decreased 0.6% from the prior month to a seasonally adjusted annual rate of 618,000. Expectations were for a print of 620,000.

Baker-Hughes Rig Count Baker Hughes reported the U.S. rig count was up 5 rigs from last week to 995, with oil rigs up 4 to 804, gas rigs up 1 to 190, and miscellaneous rigs unchanged at 1.

The U.S. Rig Count is up 186 rigs from last year’s count of 809, with oil rigs up 152, gas rigs up 35, and miscellaneous rigs down 1 to 1. The U.S. Offshore Rig Count was unchanged at 13 rigs and down 5 rigs from last year’s count of 18.

Atlanta Fed’s Q1 GDPNow estimate was unchanged at 1.8% after being previously cut to well below the 2.5% median Blue Chip forecast.

Market Sentiment – Fed data showed an $11.6 billion decline in Treasury holdings in the week ending March 21st. Additionally, there was a $16.7 billion decline on the Wednesday-to-Wednesday figure. Yields were up a few basis points across the curve over that time span, as well.

Minneapolis Fed Kashkari supports the recent rate hike decision for the sake of continuity, though he still thinks there is a ways to go before reaching maximum employment and wage growth.

He said he’ll be more supportive of rate hikes when he sees more wage growth. Kashkari felt that the supporting the hike was appropriate after the Fed has essentially signaled one, though the data does not necessarily support one.

Kashkari went on to say the Fed cannot shrugg off downside risks from a trade war, but have to try to avoid that. Otherwise, he said the economy is about even right now and it’s unclear why the dollar is falling.

He thinks the number of new crypto currencies are approaching farce levels given the negligible barriers to entry.

Dallas Fed Kaplan believes the U.S. will post strong growth in 2018, but anything that impedes global trade is likely to impede growth. He said it is in the interest of the U.S. to have fair and open trade, not tariffs.

Fedspeak for next week includes New York Fed Dudley, Cleveland Fed Mester, and Fed VC for supervision Quarles scheduled to make comments on Monday.

Atlanta Fed Bostic will be speaking on Tuesday and again on Wednesday. Philadelphia Fed Harker will addressing the economic outlook on Thursday.

The iShares 20+ Year Treasury Bond ETF (TLT) pulled back after trading down to $119.62 but held the $120 level along along with its 50-day moving average for a second-straight session.

Resistance remains at $120.50-$121. Support is at $119.75-$119.25 with a close below $119 signaling a short-term top.

RSI recently peaked near the 60 level and resistance from earlier this month. Support is at 50.

Market Analysis – The Russell 2000 ETF (IWM) fell for the 7th time in nine sessions after bottoming at $150 to end the week. Late February support at $150.50-$150 was breached with risk to early March lows near $148.50 on a close below the latter.

We mentioned the double-top formation that was developing at the $160 level mid-month and was a bearish signal. The last backtest wasn’t complete until the 200-day moving was breached.

Near-term resistance is at $151-$151.50 followed by $152-$152.50.

RSI appears to be headed towards February support at 30 on continued weakness. Resistance is at 40-45.

The Technology Select Sector Spiders (XLK) fell for the 8th time in nine sessions with Friday’s low tapping $64.25. Mid-February support at $64-$63.75 is in play with a close below the latter being a continued bearish development.

Lowered resistance is at $64.75-$65 followed by more important hurdles at $66-$66.25.

RSI has been in a steady downtrend and is trying to hold February support at 30. A close below this level could lead to a quick test towards 25-20 and August 2015 lows. Resistance is at 35-40.

The percentage of S&P 500 stocks trading above the 50-day moving closed Friday at 14.51% with the intraday low reaching 14.31%. Support is at the 13.5% level but the February 9th intraday low tagged 7.52%.

A possible bottoming process could start with continued closes back above resistance at the 20% level.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 54.9% and Friday’s low. Early February support is in the 50% area with a close below this level being a continued bearish development.

The February 9th low tapped 50.96%. Resistance is at the 60% level.

Existing Position Update

Tech continues to slide.

Furthermore, tech rallied ahead of blue chips last several weeks, so the current corrective pressure is not totally unexpected…especially with the Dow following instead of leading ahead.

Our options spreads have plenty of time till expiration – enough for the market to correct and bounce back above the 50 day line.

And in worst case scenario – we are completely hedged…if we end up violating the 200 day line and remaining there for more than 2 sessions.

The only stock that’s approaching expiration is FB and I’m expecting price to move above our short strike price expiration level before next Friday’s expiration date.

I will update you tomorrow as usual.

Roger Scott