U.S. markets showed strength on the open and throughout the first half of action as the official start of 1Q earnings season heats up this week.

Today’s rebound from Friday’s drubbing was slightly bullish but the final hour pullback on light volume was more bearish with the indexes closing well off their intraday highs.

The technical outlook remains shaky if the market can’t keep any momentum with volatility remaining slightly elevated.

The Nasdaq rallied 0.5% after reaching a peak just south of 7,075 intraday but closed below the 7,000 level for the second-straight session. The S&P 500 added 0.3% after trading to a high of 2,653 while holding the 2,600 level for a 5th-straight session.

The Dow advanced 0.2% after making a run to 24,373 but was unable to hold the 24,000 level for the second-straight session. The Russell 2000 was up 0.1% after tapping an intraday high of 1,533 and has been holding the 1,500 level for five-straight sessions.

Health Care hopped 1% higher to lead sector strength.

Technology rose 0.7% while Financials, Energy and Material were up 0.5%. Industrials and Consumer Discretionary slipped 0.3% and 0.2%, respectively, to pace the laggards.

Total Q1 earnings for the S&P 500 index are expected to be up 16% from the same period last year on 7.4% higher revenues, the highest quarterly earnings growth pace in seven years.

It is important to note the reporting cycle has actually begun as 22 S&P 500 members with fiscal quarters ending in February have reported results already.

Earnings growth is expected to be in double-digit territory for the Technology and Finance sectors. Financials will be in focus on Friday and will get most of Wall Street’s attention.

Energy sector earnings are expected to be up 60.2% from the same period last year on 15.6% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from 16% to 14.6%.

For the S&P 600 index, total Q1 earnings are expected to be up 14.1% from the same period last year on 10% higher revenues. This would follow 14.8% earnings growth on 7.7% revenue growth in the preceding quarter.

For full-year 2018, total earnings for the S&P 500 index are track 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 4.1%, respectively.

The implied EPS for the index, calculated using current 2018 P/E of 17 times and index close is $153.80. Using the same methodology, the index EPS works out to $168.30 for 2019 (P/E of 15.5 times).

Global Economy – European markets were higher across the board despite weaker-than-expected economic news. Germany’s DAX 30 and UK’s FTSE 100 rose 0.2%. The Stoxx 600 Europe and France’s CAC 40 climbed 0.1%. The Belgium20 was up a half-point, or 0.02%.

Eurozone April Sentix investor confidence fell 4.4 to 19.6, weaker than expectations for a decline of 3.2 to 20.8.

The German February trade balance was in surplus by 18.4 billion euros, narrower than expectations of 20.1 billion euros. February exports unexpectedly dropped 3.2% month-over-month, weaker than expectations of for a rise of 0.4%. February imports fell 1.3%, weaker than expectations of for a gain of 0.5%.

Asian markets were back in full swing following last week’s holiday’s and closed in a sea of green. Hong Kong’s Hang Seng jumped 1.3% and South Korea’s Kospi advanced 0.6%.

Japan’s Nikkei was higher by 0.5% while
Australia’s S&P/ASX 200 and China’s Shanghai added 0.3%.

TD Ameritrade IMX for March 2018 tumbled to its lowest point in nearly two years, dropping 12% from the month prior to 5.22.

Market Sentiment – Chicago Fed President Evans aid the Fed should continue gradually raising interest rates if data on consumer prices indicate inflation will soon reach its 2% target.

He said that the headwinds that the Fed is facing have turned into tailwinds, and fiscal policy has been much more supportive of further growth, while adding the need for more accommodative monetary policy is less than it was before.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for a 2nd-straight session after pushing a high of $121.30.

Near-term resistance held and remains at $121.50-$122 and the 100-day moving average. Support is at $120.50-$120.

Market Analysis – The Spider S&P 500 ETF (SPY) traded higher for the fourth time in five sessions after reaching a late day top of $264.84. Near-term resistance at $265-$265.50 held with additional hurdles at $267.50-$268 and the 100-day moving average.

The 50-day moving average remains in a nasty downtrend and is on track to fall below the 100-day moving average if weakness returns. This would be a slightly bearish development.

RSI is back in a slight uptrend after holding support at 40. A close below this level would be a bearish signal for a continued backtest towards the 30 level and February and late March lows. Resistance is at 50 from March and last Thursday’s peak.

The Dow Jones Transportation Average ($TRAN) has been in a relatively tight range between 10,150-10,350 the past 11 trading sessions. These levels have been slightly stretched on closes below and above these levels with last Friday’s low reaching 10,036.

Support at 10,000 and the 200-day moving average has been holding the past couple sessions following today’s bottoming at 10,107. A close below 9,950-9,900 would be a bearish signal with risk towards the 9,800 area and February lows.

Resistance is at 10,450-10,500 and the 50/100-day moving averages that are on track to form a mini death-cross. A move above the latter would help the technical outlook but continued closes back above 10,600 would be a more bullish development.

RSI is trying to hold near-term support at 40-35 with risk to 30 and February lows on a close below the latter.

Resistance is at 45-50. This will be an important sector to watch this week as the Transports tend to be an early signal on how the Dow might trend as the two usually like to trade in tandem.

Existing Position Update

The overall market is expected to continue congesting next few sessions – as we are seeing a possible upside triangle pattern or flag develop in the near term.

Higher lows are positive and if stocks can remain above the 200 day line over the near term, there’s odds of seeing substantial rally – especially if global conditions improve.

TSLA is down but price remains substantially above our short bull put spread strike price. Expect more decay over the near term.

BABA is slightly down but if stocks can remain above the 200 day line over the near term, the odds of seeing more upside develop before expiration is very highly probable.

Looking at GOOGL and few other stocks that have been beaten up over the past few weeks. Will have position open before end of day tomorrow.

Roger Scott