U.S. markets were mixed on Friday while closing mostly lower for the week following slightly disappointing economic news.

Concerns over Italy also caused some tentativeness as the major indexes were choppy throughout the session.

President Trump signed a spending bill that will avert a government shutdown and will keep the U.S. government open through December 7th.

Although it had little effect on the market, the bill removed some uncertainty ahead of the mid-term elections in November.

The Russell 2000 rallied 0.4% after testing a high of 1,699.

Resistance at 1,700 and the 50-day moving average held with a close above the latter being a slightly bullish development.

The Dow climbed 0.1% following the intraday push to 26,515. It was the 4th-straight session the blue-chips made a lower high and lower low with resistance at 26,600 continuing to hold.

For the week, the blue-chips fell 1.1% and the small-caps gave back 1%.

The Nasdaq edged up 0.1% after reaching a morning peak of 8,065.

Lower resistance at 8,075-8,100 held for the 3rd-straight session with a close above the latter getting fresh all-time highs in play.

The S&P 500 slipped less than a point, or 0.0% following a run to 2,920.

Lower resistance at 2,920-2,925 held for the 5th-straight session with a move above the latter being a slightly bullish signal.

The Nasdaq was up 0.6% for the week while the S&P 500 was down 0.5%.

For the month, the Dow gained 1.9% and the S&P 500 advanced 0.4%. The Nasdaq fell 0.8% while the Russell sank 2.2%.

For the 3rd quarter, the S&P 500 rose more than 7% and the Dow advanced 9% with both indexes rising in 11 of the past 12 quarters. The Nasdaq gained just over 7% for the quarter, and has closed higher for 9-straight quarters. The Russell jumped over 5% for the 3rd quarter.

Utilities and Real Estate led sector strength after surging 1.5% and 1.2%, respectively.

Technology and Health Care rose 1% and 0.9% for the week.

Financials was the weakest sector after sinking 1% and was down 4% for the week.

Materials tumbled 4.3% for the week while Industrials and Consumer Staples stumbled 2%.

Third-quarter earnings season will take center stage starting the second week of October with results from 12 S&P 500 members out.

For Q3 as a whole, total earnings are expected to be up 17.7% in Q3 from the same period last year on 7.2% higher revenues, the 6th time in the last 7 quarters of double-digit earnings growth.

Estimates for Q3 came down as the quarter got underway, in contrast to the positive revisions trend that we have been experiencing in the comparable periods of the last three earnings seasons.

Growth in Q2 reached its highest level since 2010 at 25.4% earnings growth on 9.8% revenue gains, eclipsing the pace set in 2018 Q1.

For the small-cap S&P 600 index, total Q3 earnings are expected to be up 20.7% from the same period last year on 7.1% higher revenues.

This would follow 32.8% earnings growth on +\9.9% revenue growth in 2018 Q2.

For full-year 2018, total earnings for the S&P 500 index are expected to be up 20.7% on 6.4% higher revenues.

For full-year 2019, total earnings are expected to be up 9.8% on 5.1% higher revenues.

The implied ‘EPS’ for the index, calculated using current 2018 P/E of 18.5X and index close, is $157.72. Using the same methodology, the index ‘EPS’ works out to $173.18 for 2019 (P/E of 16.8X).

Global Economy – European markets closed lower as risks in Italy took center stage. The Italian government agreed to set next year’s budget deficit target at 2.4% of GDP, above the EU’s budget limit of 2%.

Germany’s DAX 30 sank 1.5% while the Belgium20 and France’s CAC 40 dropped 0.9%. The Stoxx 600 Europe declined 0.8% and UK’s FTSE 100 fell 0.5%.

The Eurozone September CPI estimate rose 2.1% year-over-year, matching expectations. The September core CPI was flat year-over-year, weaker than forecasts for a rise of 1.1%.

German September unemployment fell 23,000 to 2,303,000, topping forecasts for a drop of 9,000.

The September unemployment rate unexpectedly slipped 0.1% to record low of 5.1%, topping expectations for no change at 5.2%.

UK September Gfk consumer confidence fell 2 to -9, weaker than expectations of for a print of -8.

Asian markets settled mostly higher with Japan’s Nikkei leading the way after soaring 1.4% while topping its January high, and returning to levels last seen in late 1991.

China’s Shanghai jumped 1.1%. Australia’s S&P/ASX 200 rose 0.4% and Hong Kong’s Hang Seng added 0.3%. South Korea’s Kospi gave back 0.5%

The Japan August unemployment rate dipped 0.1% to 2.4%, topping expectations of no change at 2.5%.

The August job-to-applicant ratio was unchanged at 1.63, as expected.

Japan August industrial production rose 0.7%, below forecasts 1.4%.

Japan August retail sales were up 0.9%, topping expectations of 0.5%.

Personal income and Spending each rose 0.3% in August, matching estimates.

The Chicago PMI fell 3.2 points to 60.4 in September, below expectations of 62.3.

The University of Michigan consumer sentiment reading for September was downwardly-revised to 100.1, missing forecasts for a print of 100.8.

Baker Hughes reported the U.S. rig count was up 1 to 1,054 rigs, with oil rigs down 3 to 863, gas rigs up 3 to 189, and miscellaneous rigs up 1 to 2.

The U.S. Rig Count is up 114 rigs from last year’s count of 940, with oil rigs up 113, gas rigs unchanged at 189, and miscellaneous rigs up 1. The U.S. Offshore Rig Count is unchanged at 20 rigs and down 2 rigs year-over-year.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 3 sessions after testing a high of $117.91.

Upper resistance at $117.50-$118 held with a close above the latter being a slightly bullish development.

The pullback to $117.22 held upper support at $117-$116.50.

A close below $116.25 would be a bearish development for lower lows. The 50-day moving average has fallen below the 200-day moving average to form a death cross.

This is typically a bearish technical pattern for lower lows.

RSI appears to be rolling over after failing resistance at 40. Support is at 35-30 with the latter representing September lows.

Market Analysis – The PowerShares QQQ (QQQ) slipped for the first time in 4 sessions after testing a low of $184.97. Near-term support at $185-$184.50 held. A move below $183.50 could lead to a further backtest towards $182-$181.50 and the 50-day moving average.

Resistance is at $186-$186.50.

A move above the latter would be a bullish development for another run towards $187-$187.50 and fresh all-time highs. The late August peak reached $187.52.

RSI has cleared lower resistance at 60 with continued closes above this level signaling additional strength for a run at 65-70 and August highs. Support is at 55-50.

The Energy Select Sector Spider (XLE) tested a high of $76.54 before closing in the red for the 2nd time in 3 sessions. Lower resistance at $76.50-$77 held with a move above the latter being a bullish development.

The fade to $75.55 held upper support at $75.50-$75.

A close below the latter could lead to a continued backtest towards $74.50-$74 and the 50-day moving average.

RSI is in a downtrend with support at 60.

A move below this level would likely lead to a continued backtest towards 55-50. Resistance at 65.

The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 54.76% with the low tapping 53.37%. Early July support is at 51%-50% with risk to the 45% area and late June lows on a close below the latter.

Resistance at 55%-56%. A close above the latter would be a slightly bullish signal for a run towards 60%.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 60.19% and the session peak on Friday.

Resistance is at 62%-62.5% with a close above the 63% level being a more bullish development.

Support is at 57% with a move below this area signaling additional weakness towards 55% and the mid-September low.

Current Position Update

Liquidated TLT for the time being. Price is not bouncing as fast to the upside as anticipated.

Tech is mixed. MU should start descending back lower next few sessions.

NFLX appears to be ready for more upside next few sessions. I feel comfortable, especially with the premium we collected on the position.

QCOM is now one of the strongest stocks in terms of relative strength. I’m expecting the trend to continue in the near term.

The current price level actually appears to be a good turning point, back in the direction of the overall trend.

Roger Scott.