U.S. markets traded in positive territory for much of Friday’s session before selling pressure hit in the final hour of trading. Some of the early momentum came from the Financial stocks following solid stress test results on the country’s 30 largest banks.

The late day pullback resulted in a mixed session and a weekly pullback for the major indexes.

However, it was a mostly bullish month ahead of a shortened week which could heighten volatility with much of Wall Street on vacation.

The Dow rose 0.2% and was up for the 3rd time in four sessions after trading to an intraday high of 24,509.

The close below the 200-day moving average for the 4th-straight session remains slightly bearish although a bottoming process could be forming if support at 24,000 holds.

The S&P 500 climbed 0.1% following the push to 2,743 shortly after the opening bell.

A mini trading range has development from last week’s action with major resistance at 2,750 and crucial support at 2,700.

Both the Dow and S&P 500 declined 1.3% for the week with the former index down 0.6% for June and the latter up 0.5%.

The Nasdaq was higher by 70 points during the morning action but gained just 0.1% despite reaching a peak of 7,573. Last week’s low tapped 7,419 with a close below 7,400 and the 50-day moving average being a bearish development.

The Russell 2000 dipped 0.1% despite the push to 1,656 shortly after the open.

The index has closed lower in 5 of the past 7 sessions with a move below major support at 1,625-1,620 and the 50-day moving average being a bearish development.

The Russell 2000 fell 2.5% for the week while the Nasdaq gave back 2.4%. For the month, Tech rose 0.9% and the small-caps added 0.6%.

For the quarter, the Russell 2000 jumped 7.4% and the Nasdaq soared 6.3%.

YTD, the indexes are up 7% and 8.8%, respectively. The S&P 500 posted a quarterly gain of 2.9% and is up 1.7% for 2018. The Dow rose 0.7% over the 3-month period but is down 1.8% for the year.

Energy and Materials were up 0.6% and 0.4%, respectively, and were the strongest sectors. Communication Services, Financials and Consumer Staples slipped 0.1% to pace sector laggards on Friday.

For the week, Utilities were up 2.9% while Energy gained 2.4%. Real Estate advanced 1.2% and was the only other sector that showed a gain.

Technology and Consumer Discretionary tumbled 2.2% last week while Financials were down 1.8%. Health Care was hammered for 1.7%.

Global Economy – European markets closed higher across the board on Friday after EU leaders reached an agreement on refugees with the deal removing some of the political risk that had been hanging over the region.

Germany’s DAX 30 was higher by 1.1% and France’s CAC 40 soared 0.9%.
The Stoxx 600 Europe jumped 0.8% and the Belgium20 was up 0.5%. UK’s FTSE 100 advanced 0.3%. The major indexes posted weekly losses but quarterly gains.

Eurozone June CPI rose 2% year-over-year, matching forecasts. June core CPI rose 1%, also matching expectations.

German June unemployment fell 15,000 to 2,342,000, stronger than forecasts for a decline of 8,000. The June unemployment rate was unchanged at a record low of 5.2%, right on expectations.

Asian markets were mostly higher with Australia’s S&P/ASX 200 lagging after falling 0.3%.

China’s Shanghai zoomed 2.2% and Hong Kong’s Hang Seng rallied 1.6%.

South Korea’s Kospi rose 0.5% and Japan’s Nikkei rose 0.2%. Australia’s S&P/ASX 200 fell 0.3%.

China’s service-trade deficit widened in May to $27.6 billion from April’s deficit of $24.1 billion. The country had a surplus of $25 billion in trade of goods for May, versus a $29.4 billion surplus in April.

The Japan May jobless rate unexpectedly slipped 0.3% to 2.2%, better than estimates for no change at 2.5%. The May job-to-applicant ratio rose 0.01 to 1.60, stronger than expectations of no change at 1.59.

Japan May industrial production dipped 0.2%, stronger than expectations for a drop of 1%.

Personal Income and Outlays rose 0.4% in May, matching forecasts, and spending was up 0.2%, which was slightly below expectations.

The Chicago PMI checked in 64.1 for June, up 1.4 points, which was significantly better than estimates for a pullback to 60. The 3-month moving average increased to 61.5 from 59.2.

June Consumer Sentiment came in at 98.2, up 0.2 points, missing forecasts for a print of 99, and lower than the preliminary June reading of 99.3.

Atlanta Fed’s Q2 GDPNow estimate was slashed to 3.8% from 4.5%, moving much closer to the 3.5% median Blue Chip economist forecast. The nowcast of 2Q real personal consumption expenditures growth declined from 3.7% to 2.7%.

Baker-Hughes Rig Count reported the U.S. rig count was down 5 rigs from last week to 1,047, with oil rigs declining 4 to 858, gas rigs slipping 1 to 187 and miscellaneous rigs unchanged at 2.

The U.S. Rig Count is up 107 rigs from last year’s count of 940, with oil rigs higher by 102, gas rigs up 3 and miscellaneous rigs climbing 2. The U.S. Offshore Rig Count is up 1 rig to 19 and down 2 rigs year-over-year.

Market Sentiment – The FOMC next meets on July 31st-August 1st, and there is risk for a 25 basis-point hike, as the Fed need not wait until the September 25-26th meeting where there will be a press conference, although it’s been the pattern to make moves then.

Wall Street will monitor Fedspeak through July to assess the chances for a tightening announcement on August 1st. Some analysts believe a major clue could be given by Chairman Powell at his semi-annual Monetary Policy Report.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in five sessions despite testing an intraday high of $122.50. Upper resistance at $122.25-$122.50 held on a dime before the late day fade to $121.65.

Upper support at $121.50-$121 and the 200-day moving average held on the backtest to $121.65 with a close below the latter signaling additional weakness.

RSI is back in a slight downtrend with near-term support at 60. A move below this level could lead to a retest towards the 50 level and support that held throughout June. Resistance is at 65-70 with the latter representing the late May peak.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) fell for the first 4th in 7 sessions after closing on its session low. Current support at $72.25-$72 held.

A move below the latter would likely confirm a short-term top and a continued backtest towards $71.25-$71 and the 50-day moving average.

Lowered resistance is at $72.75-$73 with continued closes back above the latter suggesting a near-term bottom is in.

RSI is trying to hold support at 45-40 with the latter representing March lows. A move below 40 would be a bearish development with risk to 30 and February lows. Current resistance is at 50.

The Industrials Select Sector Spider (XLI) was up for the 2nd-straight session after reaching an intraday peak of $72.43. Near-term resistance at $72.50-$73 held with continued closes above the latter signaling renewed strength.

Support is at $71.25-$70.75 with a move below the latter signaling additional weakness with a possible retest to the $70-$69 area and the early May bottom.

The 50-day moving average is rolling over and is in danger of falling below the 200-day moving average.

This would form a death-cross and a bearish technical pattern that tends to lead to lower lows.

RSI has been holding February and multi-year support at 30.

A close below 30 would be a very bearish development with risk to 25-20 and levels not seen since July/ August 2015.

The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 52.47% and the session low.

Current support is at 50%-45% with a move below the latter likely leading to 32%-30% and early May lows. Resistance is at 55%-57.5%.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 55.33%, up 1.94%, with Friday’s peak reaching 58.25%.

Resistance at 57.50%-60% held with a close above the latter being a slightly bullish development.

Support is at 50% with last Thursday’s low reaching 49.51%. A move below 49.50% could lead to continued weakness towards the 45%-43.50% area and April lows.

All the best,
Roger Scott.