U.S. markets were weak for much of Friday’s session but showed some strength intraday before settling mixed. The Energy sector was the major news story following a report about higher output being planned from OPEC and Russia.

There was little impact from earnings or economic news as the major indexes traded in a narrower range on light volume while closing higher for the week.

Volatility traded below major support but a level that failed to hold.

The Dow fell 0.2% following a backtest to 24,687 while closing below the 24,800 level for the first time in five sessions.

The S&P 500 also declined 0.2% after testing a low of 2,714 but has been holding major support at the 2,700 level for the past dozen sessions.

The Dow and the S&P 500 were up 0.2% and 0.3%, respectively, for the week with both indexes showing gains in two of the past three weeks.

The Russell 2000 slipped 0.1% after trading in a 5-point range while topping out at 1,628.

The Nasdaq advanced 0.1% after reaching a peak of 7,452 intraday while closing above the 7,400 level for the 3rd-straight session.

For the week, the Nasdaq was up 1.1% and Russell 2000 advanced a third of a point, respectively, with both higher in three of the past four weeks.

Real Estate and Utilities climbed 0.5% and 0.4%, respectively, while Consumer Discretionary and Consumer Staples gained 0.2% to show sector strength. Energy easily led the laggards after sinking 2.6% while Materials fell 0.5%.

For the week, the best-performing sectors were the Utilities and Real Estate after adding 2.7% and 1.6% while Industrials rose 1.3%.

The weakest sectors were Energy and Financials with declines of 2.7% and 0.9%, respectively.First-quarter earnings season continues to wind down with 95% of the S&P 500 members having reported results.

Earnings are up 24.2% from the same period last year on 8.5% higher revenues, with 77.6% beating EPS estimates and 74.5% topping revenue estimates.

Looking at Q1 as a whole, total earnings are expected to be up 24% from the same period last year on 8.5% higher revenues, the highest quarterly earnings growth pace in seven years.

Net Income margins for the quarter are on track to expand by 1.5%.

Energy sector earnings increased 75.7% from the same period last year on 14.2% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth eases from 24.2% to 22.5%.

For the small-cap S&P 600 index, Q1 results from nearly 90% of the index’s total membership are in.

Earnings for these companies are up 20.9% on 9.6% higher revenues, with 59% topping EPS estimates and 72% beating revenue estimates.

For the quarter as whole, total S&P 600 earnings are expected to be up 18.2% on 9.2% higher revenues.

For full-year 2018, total earnings for the S&P 500 index are expected to be up 19.5% on 5.9% higher revenues.

For full-year 2019, earnings are expected to be up 9.5% on 4.5% higher revenues.

The implied EPS for the S&P 500 index, calculated using current 2018 P/E of 17.4X and index close is $156.19.

Using the same methodology, the index EPS works out to $170.98 for 2019 (P/E of 15.9X) and $187.74 for 2020 (P/E of 14.5X).

Global Economy – European markets were mixed on Friday as a brewing political crisis in Spain and fresh Brexit discussions between Brussels and London weighed on sentiment.

Germany’s DAX 30 was higher by 0.7% while UK’s FTSE 100 was up 0.2% and the Stoxx 600 Europe added 0.1%. France’s CAC 40 and the Belgium20 slipped 0.1%.

UK March index of services rose 0.1%, matching expectations.

The German May IFO business climate was unchanged at 102.2, stronger than forecasts of 102.

The Bank of England Governor, Mark Carney, warned in a speech that a disorderly Brexit could trigger another interest rate cut to support the British economy.

In the May BOE meeting, he said temporary weakness in the economy was the reason they stayed put after the central bank kept rates on hold.

Asian markets were mostly lower after President Trump canceled his upcoming summit with Kim Jong Un and measured comments from North Korea afterwards.

Hong Kong’s Hang Seng gave back 0.6% while China’s Shanghai fell 0.4%. South Korea’s Kospi was down 0.2%. Australia’s S&P/ASX 200 dipped 0.1%. Japan’s Nikkei climbed 0.1%.

Durable Goods Orders fell 1.7% in April, worse than expectations for a drop of 1.3%. New Orders rose 0.8%, topping the 0.4% forecast.

Transportation orders fell 6.1%. Nondefense capital goods orders excluding aircraft were up 1%.

Shipments dipped 0.1%, with nondefense capital goods shipments ex-aircraft up 0.8%. Inventories were higher by 0.3%.

Consumer Sentiment for May declined to 98, below expectations for a print 98.8.

Baker-Hughes reported the U.S. rig count was up 13 rigs from last week to 1,059, with oil rigs up 15 to 859, gas rigs down 2 to 198, and miscellaneous rigs unchanged at 2.

The U.S. Rig Count is up 151 rigs from last year’s count of 908, with oil rigs up 137, gas rigs up 13, and miscellaneous rigs up 1 to 2.

The U.S. Offshore Rig Count was unchanged at 19 rigs and is down 4 rigs year-over-year.

Atlanta Fed’s Q2 GDPNow estimate was trimmed to 4% from 4.1%, compared to the 3.2% Blue Chip consensus.

Market Sentiment – Federal Reserve Chairman Powell did not comment on monetary policy or the economy in his comments at an event.

He did say, however, that it is a challenging time for central banks and they should not take their independence for granted, especially at a time when trust in public institutions is at an historic low.

He added it’s critically important to provide accountability and transparency.

The Fed announced its schedule for 2019 meetings with four press conferences a pattern it has followed in recent years.

There had been speculation the FOMC would move to more frequent press conferences, since the central bank has only lifted interest rates this cycle when there is a press conference. Overall, there’s 8 scheduled meetings for 2019, including shows.

The iShares 20+ Year Treasury Bond ETF (TLT) continued its resurgence after closing higher for a 3rd-straight session while reaching an intraday peak of $119.84.

Fresh resistance at $120-$120.50 held on the close back above the 50-day moving average. Additional hurdles are at $121-$121.50 on a move above the latter. Rising support is at $119-$118.50.

RSI has been in a strong uptrend and is approaching late March resistance at 60-65.

Continued closes above the latter would be a bullish development for a run towards 70 and June 2017 resistance. Support is at 55-50.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) has been in a mini-trading range for three sessions after clearing $144 on back-to-back sessions to start last week.

We mentioned a few weeks ago a possible push towards $144.50-$145 could come on continued momentum. Last Tuesday’s all-time high tapped $144.53.

Current support is at $142.50-$142 with continued closes below the latter signal a possible near-term top with risk to the $140 area.

RSI cleared but failed to hold July resistance at 70.

Continued closes above this level would be a bullish signal. A move back below 65-60 would be a slightly bearish development.

The Health Care Select Sector Spider (XLV) has been in a tight range since mid-month with a more defined range between $82.75-$83.50 last week.

We have been highlighting and forecasted the bearish death-cross with the 50-day moving average still in a nasty downtrend after falling below the 200-day moving average.

Resistance is at $83.50-$84 with a move above the latter being slightly bullish.

Current support is at $82.50-$82 with a close below the latter being a slightly bearish development.

RSI is trying to hold near-term support at 50 with risk towards 40 and the monthly low.

Resistance is at 55-60 with a move above the latter signaling additional strength.

The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 59.52%.

We mentioned last week resistance is at 60%-65% with continued closes above the latter being a bullish development.

Last week’s high tapped 65.14%. Continued closes above the 65% level would be bullish for a possible push towards 70% and December and January support levels. Current support is at 55%-50%.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average settled at 61.16%. Current resistance is at 63%-65% with the latter representing the mid-April peak.

Friday’s high reached 62.13% and a level that trigger two other times to start last week.

Continued closes above the 65% level would be a bullish signal for a run towards 70%-75%.

Support is at 56%-55% and early May support with a move below the latter being a slightly bearish signal.

Existing Position Update

TSLA iron condor expired worthless.

Expect volatility to pick up over the next few sessions.

Should have something mid week – since institutional traders usually take a few days to move back into markets after long weekend.

Roger Scott