U.S. markets showed early morning weakness on Friday as tensions remained elevated heading into the G-7 meeting, where trade and tariffs were certainly discussed.
The major indexes drifted off their lows and turned positive during the second half of action while pushing near-term resistance ahead of a number of potentially market-moving events this week.
The Nasdaq added 0.1% after making an intraday push to 7,653 while holding the 7,600 level throughout last week on the run to record highs.
The Russell 2000 rose 0.3% following a run to 1,674 and coming within 5 points of its all-time high set the previous session.
The small-caps rallied 1.6% for the week with upside towards 1,680-1,700 on continued momentum. The Nasdaq was higher by 1.2% and has potential to push 7,750-7,800 on continued momentum.
The S&P 500 advanced 0.3% on the run to 2,779 into the close and is less than 1% away from clearing major mid-March resistance at 2,800.
The Dow climbed 0.3% after reaching a peak of 25,325 and has been holding the 25,000 level for 3-straight sessions.
The Dow was up 2.8% for the week while the S&P rose 1.6%. Both indexes are roughly 4% and 3% away from triggering fresh all-time highs.
Consumer Staples surged 1.2% to led sector strength with Health Care gaining 0.6%. Energy and Technology paced sector laggards with pullbacks of 0.2%.
For the week, Consumer Discretionary and Materials rose 3.2% and 3%, respectively, to pace sector leaders. Utilities were the only sector laggard after tanking 3%.
Global Economy – European markets were mostly lower on Friday following weak economic data and news that Italy may ask for more funds from the EU budget.
The Belgium20 sank 0.6% and Germany’s DAX 30 gave back 0.4%. UK’s FTSE 100 was down 0.3% and the Stoxx 600 Europe slipped 0.2%. France’s CAC 40 was up nearly 2 points, or 0.03%
The German April trade balance shrank to a surplus of 20.4 billion euros, well above expectations of 10.2 billion euros. April exports fell 0.3% matching forecasts.
April imports rose 2.2%, much stronger than the 0.6% forecasted.
German April Industrial Production slipped 1%, missing predictions for a 0.3% rise.
France April industrial production sank 0.5%, below forecasts for a gain of 0.3%.
Asian markets were lower across the board as traders headed to the sidelines ahead of the U.S./ North Korea summit.
Hong Kong’s Hang Seng tumbled 1.8% and China’s Shanghai stumbled 1.4%.
South Korea’s Kospi decline 0.8% and Japan’s Nikkei fell 0.6%. Australia’s S&P/ASX 200 dipped 0.2%.
China’s foreign-exchange reserves for May fell $14.23 billion to $3.111 trillion, below forecasts for a $17 billion drop.
The China May trade balance unexpectedly shrank to a surplus of $24.92 billion, narrower than expectations of $33.25 billion.
May exports rose 12.6% year-over-year, stronger than forecasts of for a rise of 11.1%. May imports rose 26%, topping estimates of 18% year-over-year.
Japan Q1 GDP was unrevised at -0.6%, below expectations of an upward revision to -0.4%.
The Atlanta Fed’s Q2 GDPNow estimate was raised to 4.6% from 4.5% previously. The nowcast of the contribution of inventory investment to second-quarter real GDP growth increased from 0.99 percentage points to 1.06 percentage points.
Wholesale Inventories edged up 0.1% in April, with sales up 0.8%. The biggest movers in inventories were a 2.2% decline in drugs and a 0.9% increase in computers.
For sales, machinery was up 1.9%, petroleum was up 1.5%, and computers were up 1.2%. The inventory-shipment ratio slipped to 1.28 from 1.29.
Baker-Hughes reported that the U.S. rig count was up 2 rigs from last week to 1,062, with oil rigs up 1 to 862, gas rigs also up 1 to 198 and miscellaneous rigs unchanged at 2.
The U.S. Rig Count is up 135 rigs from last year’s count of 927, with oil rigs up 121, gas rigs up 13 and miscellaneous rigs up 1 to 2. The U.S. Offshore Rig Count is up 1 rig to 20 and down 2 rigs year-over-year.
Market Sentiment – There are a few of other Fed events next week as well, aside the FOMC meeting. On Tuesday, the Senate Banking Committee will vote on the nominations of Richard Clarida for vice chairman and Michelle Bowman for Fed governor.
The Fed board will also hold an open meeting on Thursday for the final ruling to establish single-counterparty credit limits for large financial firms.
And finally, Dallas Fed Kaplan addresses business leaders on Friday and could make comments on the economy or about the Fed.
The iShares 20+ Year Treasury Bond ETF (TLT) traded lower throughout the session while bottoming at $119.44.
Near-term support at $119-$118.50 and the 50-day moving average held with a close below the latter signaling additional weakness. Resistance is at $120-$120.50.
RSI is approaching support at 50 with a move below this level signaling additional weakness. Resistance is at 55-60.
Market Analysis – The PowerShares QQQ (QQQ) closed higher for the 6th time in 8 sessions after reaching a late day peak of $174.88.
We highlighted the tight trading range between $167-$171 throughout May and mentioned a possible run towards $172-$174 could come on a breakout.
The prior all-time high at $175.21 from early March was cleared on last week’s high of $175.93.
Continued closes above the $175 level could get $177-$177.50 in play on additional momentum.
Near-term support is at $173-$172.50 with a move below $172 getting the prior trading range from May back in play.
RSI recently cleared March resistance at 70 with continued closes back above this level being a slightly bullish signal.
Support is at 60 with a move below the latter likely leading to a further backtest towards 50 and resistance throughout May.
The Real Estate Select Sector Spider (XLRE) has been in a solid uptrend since mid-May with current resistance from late January at $32-$32.25 in play.
Friday’s high tapped $32.08 and the February 1st peak reached $32.42. Continued closes above $32.50 could get the 52-week high just north of $34 in play.
Rising support is at $32-$31.75 and the 200-day moving average. The 50-day moving average has also been trending slightly higher.
RSI is pushing early month resistance with continued closes above 70 signaling additional strength and a breakout from last week’s trading range.
Support is at 60 with a close below this level likely leading to a further backtest towards 50.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 71.23%. December and early January resistance is in the 75%-80% area on continued momentum. Current support is at 65%.
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.
Last week’s peak reached 65.04% on prior session.
Continued closes above the 65% level would be a bullish signal for a run towards 70% and mid-March support. Current support is at 60%-55% with a move below the latter being a slightly bearish signal.
Current Position Update
TSLA huffed and puffed and practically gave up all the gains from the past few sessions. I’m expecting more corrective pressure, since the company is getting more negative coverage from big banks
Expect more corrective pressure to move into the stock over the next few sessions.
PYPL remains overbought. I’m not expecting too much additional upside over the near term. Expect congestion and consolidation followed by corrective pressure.
Volatility was too low on Friday to initiate new positions.
I don’t want to trade for the sake of trading.
Will have new iron condor and directional credit spread beg. of next week.
Roger Scott