U.S. markets pulled back on Friday despite solid earnings from the Financial sector. The solid numbers were attributed to rising interest rates and the effects of tax reform, but strong earnings were widely expected with the sector turning lower soon after the open.

The market kept its losses to a minimum although the final hour of trading brought session lows with a slight bounce into the close. The major indexes still managed gains for the week and ahead of the first full week of 1Q earnings season.

The S&P 500 slipped 0.3% after tapping a low of 2,645 but has been holding the 2,600 level for nine-straight sessions. The Dow fell 0.5% following the backtest to 24,243 while holding the 24,000 level for the past four sessions.

For the week, the S&P 500 was up 2% while the Dow gained 1.8%. Both indexes failed their 50-day moving averages on the open with the 100-day moving averages closing below the former for the week. We mentioned the mini-death crosses would be a slightly bearish development and something to watch this week.

The Nasdaq gave back 0.5% after trading to an intraday low of 7,078 but has been holding the 7,000 level for four-straight sessions. The Russell 2000 was lower by 0.5% following the late day bottom to 1,545 and has been holding crucial support at the 1,500 level for nine-straight sessions.

The Russell 2000 rallied 3% for the week while the Nasdaq jumped 2.8%. The Nasdaq closed slightly below its 100-day moving average while the Russell 2000 held this key technical level of support on Friday’s pullback.

Energy and Utilities were the sector standouts after rising 1.1% and 0.8%, respectively. Financials fluttered 1.5% to pace sector weakness while Consumer Discretionary was off 0.6%.

For the week, Energy surged 3% while Technology jumped 1.3% and Materials were up 0.4%. Utilities sank 2.8% while Real Estate was down 2.6% to pace sector laggards.

First-quarter earnings heats up this week with Q1 earnings for the S&P 500 index expected to be up by 16% from the same period last year on 7.4% higher revenues. This would represent the highest quarterly earnings growth rate in seven years.

Earnings growth is expected to be in double-digit territory from the year-earlier level for the Technology and Finance sectors. Energy sector earnings are expected to be up just north of 60% from the same period last year on 16.1% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from 16.1% to 14.6%. Friday’s results from the Finance sector were very strong and should continue in the coming quarters.

In percentage terms, estimates have gone up the most for the Basic Materials, Energy, and the Industrials sectors. In absolute terms, positive revisions to the Finance and Technology sectors account for more than half of all estimate upgrades since the quarter got underway.

For the S&P 600 index, Q1 earnings are expected to be up 13.4% from the same period last year on 6.9% higher revenues. This would follow 15.2% earnings growth on 7.6% revenue growth in the preceding quarter.

For full-year 2018, earnings for the S&P 500 index are forecasted to be up 17.9% on 5.3% higher revenues, with full-year 2019 earnings and revenues for the index expected to be up 9.4% and 4.3%, respectively.

The implied EPS (earnings per share) for the index, calculated using a 2018 P/E of 17.3 times is $153.80. The index EPS equates to $168.30 for 2019 on a forecasted P/E of 15.7 times. The multiples for 2018 and 2019 were calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

Global Economy – European markets traded higher for a second-straight session, although the gains were limited, to extend their weekly win streak to three-straight. Germany’s DAX 30 rose 0.2%. UK’s FTSE 100, the Stoxx 600 Europe, France’s CAC 40 and the Belgium20 were up 0.1%

The eurozone trade surplus widened in February, with imports falling 3.1%. Exports also declined by 2.3%, leaving the EU with a 21 billion euro surplus, or $25.9 billion, up from 20.2 billion euro in January.

Asian markets were mixed with China’s Shanghai falling 0.7% while
Hong Kong’s Hang Seng slipped 0.1%. Japan’s Nikkei gained 0.6% and South Korea’s Kospi advanced 0.5%. Australia’s S&P/ASX 200 climbed 0.2%.

China’s trade balance swung to a deficit of $4.98 billion in March from a $33.7 billion surplus in the previous month. Expectations were for a surplus of $19.6 billion.

Chinese banks issued 1.12 trillion yuan, or $178 billion, of new yuan loans in March, up from 839.3 billion yuan in February, but below forecasts for a print of 1.2 trillion billion yuan. Total social financing, came in at 1.33 trillion yuan in March, up from 1.17 trillion yuan in February.

Preliminary April Consumer Sentiment dropped 3.6 points to 97.8.

The JOLTS report showed job openings declined 176,000 to 6,052,000 in February.

Baker-Hughes Rig Count reported that the U.S. rig count was up 5 rigs from last week to 1,008, with oil rigs up 7 to 815, gas rigs down 2 to 192, and miscellaneous rigs unchanged at 1.

The U.S. Rig Count is up 161 rigs from last year’s count of 847, with oil rigs up 132, gas rigs up 30, and miscellaneous rigs down 1 to 1. The U.S. Offshore Rig Count was up 4 rigs to 16 and down 5 rigs from last year’s count of 21.

Market Sentiment – St. Louis Fed James Bullard wants the FOMC statement updated to indicate the Fed is already at or near a neutral rate. He also spent time reflecting on trade developments, warning that the worst outcome would be implementation of tariffs with no prospect of removal .

However, he hopes negotiations will prove constructive and avoid that negative outcome.

Bullard thinks that recent inflation data has been unsurprising, only just reviving to 2016 levels, while global growth has surprised to the upside and weakened the dollar. He also supports reviewing the inflation framework every 5-years or so.

Bullard went to add he doesn’t think that if Q1 GDP comes in lower than expected that it will affect the Fed’s medium-term outlook and doesn’t believe any major change in the jobless rate will take place by year-end.

The iShares 20+ Year Treasury Bond ETF (TLT) traded higher for much of the session while peaking at $121.13. Lowered resistance at $121-$121.50 was cleared but failed to hold into the close.

Support remains at $120.50-$120.

A trading range between $122-$120 has been holding since late March with a close below $119.50-$119 being a bearish development. A move above $122-$122.50 and the 200-day moving average would be a bullish signal.

RSI is trying to clear resistance at 55 with potential for a run towards 60-65 and late March and December highs.

Near-term support is at 50 with risk to 40 on a more below this level.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) bottomed at $135.26 with prior support at $135.25-$134.75 holding. A close below the latter could lead to a continued pullback towards $134-$133.50 and the 50-day moving average.

Lowered resistance is at $136-$136.50 with continued closes above $137 signaling a possible run towards $139-$140 and a return to all-time highs.

The 50-day moving average has flattened out from a recent downtrend with RSI holding support at 50 on Friday’s weakness. A close below this level would be a bearish development with risk to 40. Resistance is at 60 and the mid-March peak.

The iShares PHLX Semiconductor ETF (SOXX) tested a low of $179.58 while closing back below its 50-day moving average to snap a four-session winning streak.

Near-term support at $180-$179.50 held with risk to $177.50 on a close below the latter. Lowered resistance is at $182-$182.50 with continued closes above $184 and Friday’s high signaling returned momentum.

RSI failed to hold 50 with continued closes below this level likely leading to a retest to the 40 area and recent lows. Continued closes back above 50 could lead to a run at 60 and mid-March resistance.

The percentage of S&P 500 stocks trading above the 50-day moving closed Friday at 38.69% down from an opening of high of 43.84%. Shaky support is at 35%-34% with a close below the 30% level being a bearish signal for the index

Resistance is at 40%-45% with continued closes above the latter leading to a possible push towards the 50% level and the mid-March peak.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 56.31% with Friday’s high reaching 61.16%. Support is at 50% and early April support with a close below this level being a bearish development.

Resistance remains at 60% with continued closes back above this level being slightly bullish.

Existing Position Update

BABA was liquidated end of day. The trade was scratched with minor loss but I am planning on jumping back in with both feet next week.

TSLA outperformed the market and price is heading higher.

AAPL moved higher up as well.

TLT is higher and I anticipate congestion and similar trading action to the XLU utilities ETF for the foreseeable future.

All the best,