U.S. markets closed Friday with solid gains and fresh record highs following soothing remarks from Fed Chair Jerome Powell on the economy.

Powell defended the central bank’s plan to raise interest rates gradually while highlighting the strength in the economy and strong corporate results.

The major indexes got a nice pop,on the news but remained relatively flat into the closing bell.

Volatility was calm but held key support as a number of ongoing political shenanigans had little effect on the overall market.

The Nasdaq rallied 0.9% after peaking at a record high of 7,949.

Major resistance at 7,900 was cleared and held with blue-sky territory towards 8,000-8,100 as long as this level holds.

The Russell 2000 rose 0.5% following its late session run just shy of 1,727 and fresh all-time high. There is fluff to 1,740-1,750 on continued strength.

For the week, the small-caps surged 2% while Tech was higher by 1.7%.

The S&P 500 added 0.6% after testing a lifetime high of 2,876. Fresh resistance is at 2,900-2,925 on continued momentum.

The Dow was up 0.5% following a mid session push to 25,826. Lower resistance at 25,800-26,000 held with a close above the latter being a continued bullish signal.

The S&P 500 gained 0.9% and was higher for the 2nd-straight week. The Dow closed higher for the 7th time in 8 weeks after rising 0.5%.

Communication Services surged 1.5% to pace sector strength while Materials and Technology soared 1.3% and 1%, respectively.

Consumer Staples was the only sector laggard after giving back 0.2%.

For the week, Energy and Consumer Discretionary zoomed 2.2% and 1.6%.

Utilities and Consumer Staples fell 1.4% and 0.9%, respectively.

No update on earnings.

Global Economy – European markets traded in a narrow range while closing with modest gains. Traders were awaiting news from the U.S. on monetary policies and being slightly cautious ahead of next week’s pending news on a Brexit update.

The Belgium20, Germany’s DAX 30, UK’s FTSE 100 and France’s CAC 40 all climbed 0.2%. The Stoxx 600 Europe was up 0.1%.

Asian markets were mostly higher despite no apparent progress in trade talks between the U.S. and China.

No further meetings are scheduled and Chinese officials raised the possibility that further negotiations might not occur until after the U.S. mid-term elections in November.

Japan’s Nikkei jumped 0.9% and South Korea’s Kospi was higher by 0.5%.

China’s Shanghai rose 0.2% and Australia’s S&P/ASX 200 edged up 0.1%. Hong Kong’s Hang Seng fell 0.4%.

Japan July PPI services rose 1.1% year-over-year, missing expectations of 1.2%.

Japan July national CPI rose 0.9% year-over-year, below forecasts of 1%. July national CPI ex-fresh food rose 0.8% while national CPI ex-fresh food & energy rose 0.3%, both matching estimates.

Durable Goods Orders dropped 1.7% in July, well below forecasts for a gain of 0.5%. Transportation orders plunged 5.3%, however, excluding transportation, orders were up 0.2%.

Non-defense capital goods orders, excluding aircraft, surged 1.4% while shipments fell 0.2%. Nondefense captial goods shipments, ex-aircraft, were up 0.9%. Inventories increased 1.3% while the inventory-shipment ratio rose to 1.63 from 1.60.

Baker-Hughes Rig Count reported the U.S. rig count was down 13 rigs from the prior week to 1,044, with oil rigs down 9 to 860, gas rigs down 4 to 182, and miscellaneous rigs unchanged at 2.

The U.S. Rig Count is up 104 rigs from last year’s count of 940, with oil rigs up 101, gas rigs up 2, and miscellaneous rigs up 1. The U.S. Offshore Rig Count is down 3 rigs to 18 and up 1 rig year-over-year.

Market Sentiment – Fed chairman Powell reiterated gradual hikes remain appropriate if growth remains strong, and he believes this will be the case given the stimulus in the system.

He added there doesn’t seem to be an elevated risk of overheating, and that there is no clear sign of inflation accelerating above 2%. However, he said the Fed will do what it takes were inflation expectations start to drift up or down materially.

Powell noted that the economy has strengthened substantially, and has good reason to expect it will continue due.

He attributed solid household and business confidence, healthy levels of job creation, rising incomes, and fiscal stimulus arriving as driving forces.

Meanwhile, he noted that inflation may no longer be the first or best indicator of a tight labor market and rising pressures on resource utilization, and risk management suggests looking beyond inflation for signs of excesses.

In closing, Powell noted the good news on inflation, that there is no clear sign of an acceleration above 2%, and there does not seem to be an elevated risk of overheating.

He believes all of this, in part, is a result of the ongoing normalization process.

Cleveland Fed’s Loretta Mester said she has been upping her forecasts on the economy and is now closer to 3% for the year. She said this pace of growth offers a compelling case for the Fed to remain on its gradual tightening path.

She doesn’t see signs the economy is overheating, even though some asset values are elevated. She believes the Fed is basically at full employment, or a little beyond full employment.

St. Louis Fed’s James Bullard warned that the yield curve should be taken seriously after several miscues in the past. He said that if it was just him, he would stand pat on policy for now while assessing incoming inflation data.

He believes that 2018 will be a good year for the economy, while there could be a slowdown in 2019-2020. Long-term he sees potential growth remaining around 2%.

Bullard dismisses the Phillips Curve argument for hiking rates as low unemployment is driving inflation higher, and doesn’t think it has been a great predictor.

He fears that hiking too much risks tipping the economy into recession, while you can always adjust policy if growth proves faster than expected.

Bullard went on to say the Fed doesn’t have to be pre-emptive at this stage. He said inflation remains sluggish, but the Fed could move fast if necessary.

He’s not worried about the time when the Fed, ECB, and BoJ are all tightening, provided the latter two were hiking rates because their economies were expanding, and not acting randomly.

The iShares 20+ Year Treasury Bond ETF (TLT) tested an opening low of $121.49 with lower support at $121.75-$121.50 getting stretched.

The rebound to $122.33 was the 5th higher finish in 6 sessions. Fresh and lower resistance from July at $122.50-$122.75 is in play with a close above the latter being a continued bullish development.

RSI is approaching resistance at 65-70 with a move above the latter signaling continued strength.

Support is at 60-55 with a close below 50 being a bearish development.

Market Analysis – The PowerShares QQQ (QQQ) was up for the 3rd time in 4 sessions with Friday’s fresh peak reaching of $182.73. July resistance at $182.50-$183 held with continued closes above the latter being a bullish signal for a run towards $185-$186.

The late July all-time peak reached $182.93.

Support is at $181.50-$181. A close below $180 would signal additional weakness towards $178-$177.50 and the 50-day moving average.

RSI is in a nice uptrend with resistance at 65-70 and the latter representing the late July high. A move above this level gets June peaks in the 75 area in play.

Support is at 60-55 with a close below 50 likely leading to additional selling pressure.

The Consumer Staples Select Spiders (XLP) fell for a 5th-straight session following the pullback to $53.90.

Upper support at $54-$53.75 held. A close below $53.50 would be a slightly bearish signal for a continued retest towards $53-$52.75.

Lowered resistance is at $54.25-$54.50.

The 50-day moving average is on track to clear the 200-day moving average to form a golden cross. This is typically a bullish technical pattern for higher highs down the road.

RSI has been in a downtrend with upper and early August support at 55-50 in focus.

There is risk to 45-40 and late May lows on a move below the latter. Resistance is at 60.

The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 68.91% with the high reaching 69.10%. Fresh resistance is at 70%-72.50% and levels reached earlier in the week.

The late July peak reached 73.80% on back-to-back sessions. Support is at 65%-60% with risk to 57%-55% and this month’s lows on a close back below the latter.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 66.01% with the session high tapping 66.99%.

Mid-month resistance is at 68% with a move above this level being a slightly bullish development for another test towards 70%-72%. Support is at 62%-60% with a move below the latter signaling additional weakness towards the 55% level.

Current Position Update

AMZN should begin seeing decay over the near term. Not too happy that stock didn’t participate in the late week rally last week – tells me that downturn may be coming or alternatively, the stock may be congesting for some time.

Not terribly worried about bonds and believe price will remain in the channel that’s been building since February.

Everything that’s known is priced into the market and whether we like it or not interest rates are on the way up – which creates a long term downtrend in the bond market¬† – one that price has to revert to.

I’m looking at several bear call spreads.

I believe market is a bit overbought and price should pullback slightly over the near term.

I’m not looking for major selling pressure.

I also believe market will become increasingly vulnerable with Trumps dramas unfolding in the coming weeks…stay tuned!

Roger Scott.