U.S. markets were mixed on Friday as Wall Street wrestled with lingering uncertainty over trade negotiations between the U.S. and China.
There were contradicting reports on whether China had agreed to cut its trade surplus with the U.S. by $200 billion, but a China official denied that an offer had been made.
The confusion kept many traders on the sidelines and the market in a tighter range with volatility remaining rather calm.
The Russell 2000 closed at an all-time high for the 3rd-straight session after adding 0.1% and reaching an intraday peak of 1,630.
The small-caps were up 1.3% for the week, its third straight positive week, and has closed higher in 11 of the past 14 sessions.
The Nasdaq declined 0.4% after trading in negative territory throughout the session with the low tapping 7,343. Tech closed below the 7,400 level for the first time in four sessions and was down 0.7% for the week.
The S&P 500 fell 0.3% after bottoming at 2,709 while holding the 2,700 level for the 7th-straight session. The index has closed lower in 3 of the past 4 sessions.
The Dow tested a morning high of 24,774 before closing with a 1-point gain, or 0.0%.
The index has traded higher in 10 of the past 12 sessions.
For the week, both the Dow and the S&P fell 0.5%. It is the third weekly decline in the past four for both indexes.
Industrials paced sector winners after rising 0.6% while Health Care was up 0.3%. Financials and Energy slumped 0.8% to lead sector laggards.
For the week, Energy and Materials jumped 1.8% and 1.7%. Real Estate dropped 3.1% while Utilities slumped 2.8%.
First-quarter earnings season is nearly complete with 92% of the S&P 500 companies announcing results thus far.
For the 461 S&P 500 members that have reported, total earnings are up 24.2% from the the year ago period on 8.7% higher revenues, with 77.7% topping EPS estimates and 74.6% beating revenue estimates.
Looking at Q1 as a whole, total earnings are expected to be up 23.9% from the same period last year on 8.5% higher revenues, the highest quarterly earnings growth pace in 7 years.
Net Income margins for the quarter are on track to expand by 1.5%, with the strongest gains coming from the Finance, Technology and Energy sectors.
Energy sector earnings increased 75.7% from the year ago levels on 14.2% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth declines from 23.9% to 22.2%.
For the small-cap S&P 600 index, Q1 results from 88.5% of the index’s total membership have been reported.
Total earnings for these companies are up 21.4% on 9.7% higher revenues, with 60.5% beating EPS estimates and 72.2% topping revenue estimates.
For the quarter as whole, total S&P 600 earnings are expected to be up 18.2% on 9.8% higher revenues.
Global Economy – European markets were lower across the board despite better-than-expected economic news as uncertainty about Italian politics remained in focus.
The Stoxx 600 Europe and Germany’s DAX 30 gave back 0.3% while the Belgium20 dipped 0.2%. UK’s FTSE 100 and France’s CAC 40 slipped 0.1%.
ECB Governing Council member Nowotny said he’s among policymakers who think the ECB shouldn’t wait too long with normalizing monetary policy, given the situation of the economy.
German April PPI rose 0.5% month-over-month and 2% year-over-year, stronger than expectations of 0.3% and 1.8% respectively.
Asian markets settled mostly higher despite trade tensions after President Trump downplayed expectations for the talks, saying China and other countries have become very spoiled.
China’s Shanghai surged 1.2% while South Korea’s Kospi advanced 0.5%. Japan’s Nikkei added 0.4% and Hong Kong’s Hang Seng rose 0.3%. Australia’s S&P/ASX 200 dipped 0.1%.
Japan April national CPI rose 0.6% year-over-year, weaker than expectations of 0.7%. April national CPI ex fresh food rose 0.7% year-over-year, weaker than forecasts of 0.8%.
April national CPI ex fresh food & energy rose 0.4% year-over-year, matching expectations.
Baker-Hughes reported that the U.S. Rig Count was up 1 rig from last week to 1,046, with oil rigs unchanged at 844, gas rigs higher by 1 to 200, and miscellaneous rigs unchanged at 2.
The U.S. Rig Count is up 145 rigs from last year’s count of 901, with oil rigs higher by124, gas rigs up 20, and miscellaneous rigs up from 1 to 2. The U.S. Offshore Rig Count was down 2 rigs to 19 and down 4 rigs year-over-year.
Market Sentiment – Cleveland Fed President Loretta Mester said the Fed should publish a financial stability report to highlight the central bank’s assessment of vulnerabilities in the financial system.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to close higher for the first time in 5 sessions while trading to an intraday peak of $117.29.
Upper resistance at $116.75-$117.25 held into the closing bell with additional hurdles at $118-$118.50. Shaky support is at $117-$116.50 with a close below $116 signaling additional weakness.
RSI is back in an uptrend after holding April and February support near the 30 level. Current resistance is at 45-50 with the latter representing this month’s peak.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) closed in the red for the 3rd time in four sessions after testing an intraday low of $246.42.
The tight trading range from last week has near-term resistance at $247.50-$248 with continued closes above the latter leading to another push towards $250.
Support is at $246.50-$246 with a move below the latter likely leading to a retest towards $245-$243.50 and the 50-day moving average.
RSI has leveled out with current resistance at 60-65.
Continued closes above the latter would be a bullish signal for a possible run towards 70 and a level that served as major support from December through January. Current support is at 55-50.
The Financial Select Sector Spiders (XLF) fell for the 5th time in six session with Friday’s low tapping $29.74.
Upper support is at $28-$27.75 was breached with a close below the latter and 50-day moving average being a slightly bearish signal.
The recent weakness follows a 5-session win streak and a breakout above the April highs. Near-term resistance is $28.25-$28.50.
RSI is trying to hold support at 50 and a level that served as resistance throughout April. Continued closes back below this level would be a slightly bearish signal for a retest to 45-40.
Upper resistance from February and March at 55-60 has been holding this month with continued closes above the latter signaling a return of momentum.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 56.83%.
Resistance is at 60%-65% with continued closes above the latter being a bullish development for a possible push towards 70% and December and January support levels. Current support is at 51%-50%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average settled at 60.19%. Current resistance is at 63%-65% with the latter representing the mid-April peak.
Continued closes above the latter would be a bullish signal for a run towards the 70%-75% area. Support is at 56%-55% and early month support with a move below the latter being a slightly bearish signal.
Existing Position Update
NVDA expired without much drama.
Price remained under our strike price during the entire trade.
NFLX appears to be congesting in a tight range – the type of environment we want to see when initiating iron condors.
I’m looking at bull put spreads for TLT right now and almost pulled the trigger yesterday – timing is fair but premium was a bit low and I don’t want to go too deep into the money – stay tuned on this one next week!
Volatility is lower in the broader market which means we have to be extra careful in our selection process. Have a great weekend.
Will update you tomorrow as usual.