U.S. markets showed weakness throughout Friday’s session while ending mostly lower for the first time in 6 sessions.
There was strength into the closing bell with the major indexes making a strong push to see green on the flat session.
The small-caps showed strength after holding positive territory throughout the second half of action with the Russell 2000 extending its winning streak to 6-straight sessions.
Meanwhile, volatility continues to sink with the VIX down another 6.7% after holding a key level of resistance on the opening market lows.
The Russell 2000 edged up 2 points, or 0.1%, despite the backtest to 1,437 at the start of trading.
Fresh support at 1,435-1,425 held with the latter representing a possible near-term double-bottom.
The Nasdaq was the weakest link after giving back 0.2% and tapping a session low of 6,933 shortly after the open.
Fresh and upper support at 6,950-6,900 was breached but held to keep 7,000 and the 50-day moving average in play.
The Russell 2000 surged 5.2% while Tech produced a weekly return of 3.5%.
The S&P 500 slipped less than a half-point, or 0.01%, after testing a low of 2,577 while closing just below the 2,600 level for the 2nd-straight session.
Near-term support at 2,575-2,550 held with a move below the latter being a slightly bearish signal.
The Dow dipped 6 points, or 0.02%, following the opening pullback to 23,798 and close just below the 24,000 level.
Fresh and lower support at 24,000-23,800 was breached but held with a move below 23,500 signaling a possible near-term top.
For the week, the S&P 500 soared 2.5% and the Dow darted 2.4% higher.
Healthcare and Consumer Staples led sector strength after gaining 0.3%.
Energy and Communication Services paced sector weakness after falling 0.5%.
For the week, Industrials and Real Estate were up 4.2% and 4%, respectively.
Industrials and Utilities were up 1.4%. Consumer Discretionary and Energy added 3.7% and 3.6%.
Fourth quarter earnings estimates have been coming down lately, reflecting the impact of economic weakness and rising costs, but many in the market suspect that they have further room to fall.
With results from 20 S&P 500 members, having fiscal quarters ending in November already out, the Q4 earnings season has gotten underway.
The reporting cycle really gets going with this week’s releases from the big banks.
Total Q4 earnings for the S&P 500 index are expected to be up 10.7% from the same period last year on 5.2% higher revenues.
This represents a notable deceleration from the average 25% earnings growth in the first three quarters of 2018.
Q4 estimates have come down sharply, with the current 10.7% rate down from 15.9% at the start of the quarter.
The strongest year-over-year earnings growth in Q4 is expected to come from the Energy, Transportation, Construction, and Retail sectors. Excluding the Finance sector’s strong growth, Q4 earnings growth for the rest of the index comes down to 8.6%, from +10.7%.
For the small-cap S&P 600 index, total Q4 earnings are expected to be up 5.1% on 6.7 higher revenues.
This would follow 33.6% earnings growth on 5.7% revenue growth in 2018 Q3.
For full-year 2019, total S&P 500 earnings are expected to be up 6.7% on 6.3% higher revenues, which would follow the 20.6% earnings growth on 6.4% higher revenues in 2018.
Estimates for 2019 have been steadily coming down, with the current 6.7% growth rate down from 9.8% in early October 2018.
Global Economy – European markets closed mostly lower following weaker-than-expected economic news and ahead of next week’s key Brexit vote.
France’s CAC 40 dropped 0.5% and UK’s FTSE 100 fell 0.4%. Germany’s DAX 30 was off 0.3% and the Belgium20 slipped just over a point, or 0.04%.
The Stoxx 600 Europe edged up 0.1%.
U.K. GDP for November was higher by 0.3%, less than the 0.4% rise in October.
Additionally, U.K.’s economy grew by 0.2% in November, up from 0.1% in October.
Asian markets rebounded to end the week while settling mostly higher with Australia’s S&P/ASX 200 bucking the trend after giving back 0.4%
Japan’s Nikkei jumped 1% and China’s Shanghai added 0.7%. South Korea’s Kospi and Hong Kong’s Hang Seng rose 0.6%.
Japanese household spending for November declined 0.6%, missing expectations for a dip of 0.1%.
November Australian retail sales were up 0.4% topping forecasts for a rise 0.3%.
December Consumer Price Index slipped 0.1% with the core rate rising 0.2%, matching forecasts. This brought the 12-month rates to 1.9% year-over-year, slipping from 2.2% for the headline, with the ex-food and energy steady at 2.2%.
Energy prices fell 3.5% after November’s 2.2% decline.
Transportation costs declined 2% with gas prices tumbling 7.5%. The rest of the components were mostly higher. Services costs were up 0.3% from 0.2%. Housing rose 0.4% from 0.3%, with owners’s equivalent rent up 0.2% following a 0.3% gain.
Food and beverage prices rose 0.4% versus 0.2%.
Apparel was unchanged after dropping 0.9% previously. Medical care was 0.3% high after the 0.4% gain.
Education/communication edged up 0.1% from 0.5%.
Other goods and services dipped 0.1% from 0.3%.
Tobacco costs fell 0.3% from 0.4%. Commodities slid to 0.7% from -0.3%. The pace of average real hourly earnings growth doubled to 1.2% year-over-year versus 0.6%.
Baker-Hughes reported that the U.S. rig count was unchanged from last week at 1,075 rigs, with oil rigs down 4 to 873 and gas rigs up 4 to 202.
The U.S. Rig Count is up 136 rigs from last year’s count of 939, with oil rigs up 121 and gas rigs up 15.
The U.S. Offshore Rig Count is down 1 rig to 21 and up 2 rigs year-over-year.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 5-session slide after trading to a high of $121.27. Fresh resistance at $121-$121.50 was split but held with continued closes above $122 signaling a possible near-term bottom.
Support is at $121-$120.50 with a move below $120 signaling lower lows.
The 50-day moving average remains on track to clear the 200-day moving average and is typically a bullish signal for higher highs.
RSI is back in an uptrend with resistance at 60.
A close above this level would signal additional strength towards 65-70.
Support is at 55-50 with the latter representing mid to late November low.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) had its 5-session winning streak snapped following the pullback to $237.96. Support at $238-$237.50 held with a close below $235 signaling a possible near-term peak.
Resistance is at $240-$240.50 with a close above the latter setting up a run towards $242-$242.50.
The 50-day moving average is showing signs of leveling out after falling below the 200-day-day moving average in mid-December.
This is a slightly bullish signal following the death cross that formed.
RSI has leveled out and is holding 50 with resistance at 55-6.
A move above the latter would signaling additional momentum towards 70 and early October highs. Support is at 45-40.
The Materials Select Sector (XLB) was down for the the first time in 6 sessions after testing a low of $51.93 while settling back below the 50-day moving average.
Upper support at $52-$51.50 held with close below $51 signaling additional selling pressure.
Resistance is at $52.50-$53.
A close above the latter and prior support from mid-November would be a bullish signal for higher highs.
RSI is in a slight downtrend with support at 55-50.
A close below the latter would be a bearish signal for additional weakness. Resistance is at 60 and the late November peak.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 38.83% and the session high.
Resistance at 40% held with a move above this level and prior support from mid-December signaling additional strength.
Current support is at 35%-32.50%.
The percentage of S&P 500 stocks trading above the 50-day moving average settled at 45.31% with the session high tapping 50%.
Lower resistance from late November at 50%-52.50% held with a close above the latter signaling additional strength.
Support is at 42.50-40% with Friday’s low tapping 40.62%.
All the best,
Head Trader.