U.S. markets showed strength for the 4th-straight session following positive trade negotiations with China after the country offered a 6-year boost in imports.

According to reports, China would increase its annual import of U.S. goods by a combined value of over $1 trillion.

China pegged its proposal to buy more U.S. goods through 2024 in a deal that would aim to reduce that annual trade deficit reduce to $0 by 2024.

The news helped capped the 4th-straight weeks of gains with the overall market getting off to its best start since 1987.

The Dow zoomed 1.4% on the late day push to 24,750.

New and lower resistance at 24,750-25,000 was tapped but held with a close above the latter and the 200-day moving signaling additional strength.

The S&P 500 surged 1.3% after reaching a midday peak of 2,675.

Fresh and lower resistance at 2,675-2,700 was tagged but held with a close above the latter getting 2,725-2,750 and the 200-day moving average in the mix.

For the week, the Dow gained 3% while the S&P 500 jumped 2.9%.

The Russell 2000 rallied 1% after testing an intraday high 1,487.

Upper resistance at 1,465-1,480 was cleared and held to get 1,500 in play on continued closes above the latter.

The Nasdaq also rose 1% following the second half push to 7,185.

Fresh and lower resistance is now at 7,200-7,250 on continued closes above the 7,150 level.

The Nasdaq was up 2.7% for the week and the Russell 2000 rose 2.5%.

Industrials were the strongest sector after advancing 1.9% while Financials and Materials were higher by 1.7%.

There were no sector laggards for the 2nd-straight session.

For the week, Financials soared 4.6% and Industrials popped 3.4% higher. There was no sector weakness.

The Q4 earnings season is underway with just over 10% of the companies in the S&P 500 reporting results. Much of the focus has been on the Financial sector with the cycle ramping up the coming weeks and representing all the major sectors coming out with quarterly numbers.

Earnings growth is expected to be in the double-digits for a number of sectors, with Energy (+60.5% growth), Transportation (+25.5%), Construction (+24.5%), and Finance (+20.3%) as the strongest.

Tech sector earnings are expected to decelerate meaningfully in Q4, up 3.8%, after back-to-back quarters of very strong growth.

Results from the companies that have reported are up 16.9% from the same period last year on 9% higher revenues.

However, earnings and revenue growth for the same companies are down from previous levels of 22% and 9.7% growth in the preceding quarter.

From the companies that have reported results, 70.9% are beating EPS estimates but only 56.4% are beating revenue estimates.

This is down from 83.6% and 60%, respectively, from the Q3 earnings season.

Looking at the Finance sector, we now have Q4 results from nearly half of the sector’s total market cap in the S&P 500 index.

Total earnings for these companies are up 15.8% from the same period last year on 3.9% higher revenues, with 72.7% beating EPS estimates and 45.5% beating revenue estimates.

As far as overall 4Q numbers, total earnings for the S&P 500 index are expected to be up 10.7% from the same period last year on 5.3% higher revenues, which would follow the 25.7% earnings growth on 8.4% higher revenues in 2018 Q3.

Global Economy – European markets showed strength for the 4th-straight session to close the week with solid gains and ahead of Monday’s deadline for a Brexit backup plan.

Germany’s DAX 30 rocketed 2.6% while UK’s FTSE 100 soared 2%. The Stoxx 600 Europe gained 1.8% and France’s CAC 40 was up 1.7%. The Belgium20 jumped 1.6%.

Asian markets also showed strength on the renewed optimism over the U.S./ China trade dispute.

China’s Shanghai was higher by 1.4% while Japan’s Nikkei and Hong Kong’s Hang Seng rose 1.3%.

South Korea’s Kospi advanced 0.8% and Australia’s S&P/ASX 200 climbed 0.5%.

Industrial Production edged up 0.3% in December, matching expectations, and boosting capacity utilization to 78.7%. Manufacturing climbed 1.1% versus a revised 0.1% gain.

Motor vehicle and parts production increased 4.7% versus November’s 0.2% reading. Computer, electronics production was up 1.3% from 0.4%.

Machinery production declined 0.6% after a 1% gain while Utilities dropped 6.3% from 1.3%. Mining increased 1.5% from 1.1% the previous month.

The Consumer Sentiment Index came in at 90.7, missing forecasts of 97. The current conditions index dropped to 110 from 116.1 while the expectations index fell to 78.3 from 87.

The 12-month inflation index was unchanged at 2.7%. The 5-year inflation gauge edged up to 2.6% from 2.5%.

Baker-Hughes reported the U.S. rig count was down 25 rigs from last week to 1,050 rigs, with oil rigs down 21 to 852 and gas rigs down 4 to 198.

The U.S. Rig Count is up 114 rigs from last year’s count of 936, with oil rigs up 105 and gas rigs up 9.

The U.S. Offshore Rig Count is down 2 rigs to 19 and unchanged at 19 year-over-year.

Market Sentiment – Chicago Fed Charles Evans said analysts can easily be patient and are well positioned to assess how the data comes in, noting whether their business contacts see things differently than what the national data are showing.

Evans said his outlook is for continued growth, but some slowing, with some weakness out of China and Europe, with tariffs factoring in. He’s not worried that inflation could get out of hand.

On the dot plot, Evans said it shows 2 hikes and that is plausible while adding he wouldn’t be surprised to see a higher funds rate by year end. He went on to say, the partial government shutdown will cause more problems the longer it extends.

New York Fed John Williams said the approach the Fed needs is one of prudence, patience, and good judgment and the motto of data dependence is more relevant than ever.

He still expects a strong and healthy economy that will grow by 2%-2.5% this year. He added that it is a step down from 2018, but still consistent with a healthy, growing economy.

Williams went on to say that the Fed also needs to keep an eye on how its balance sheet reduction program is going.

Currently, the Fed is allowing a maximum of $50 billion in proceeds from bonds it holds to roll off each month while reinvesting the rest.

Philadelphia Fed Patrick Harker said the high-level economic data looks really good.

He added though that nationally, unemployment is low and there is high job creation.

The iShares 20+ Year Treasury Bond ETF (TLT) has its 2-session winning streak snapped following the backtest to $119.39.

Lower support at $120-$119.50 was breached but held with risk towards $119-$118.50 on continued weakness.

Lower resistance at $120-$120.50. A close back above $121 would signal a possible near-term bottom.

The 50-day remains in a solid uptrend and has cleared the 200-day moving average to form a golden cross. This is typically a bullish technical signal for higher highs down the road.

RSI remains in a downtrend with support at 45-40.

A close below the latter would signal additional weakness and slightly oversold levels. Resistance is at 50-55.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) closed in the green for the 4th-straight session and 10th in the past 11 after testing an intraday high of $65.90.

Fresh and lower resistance at $66-$66.50 held with the former serving as prior support from mid-November.

Continued closes above the latter would be a bullish development for a possible run towards $68-$70 and the 200-day moving average.

Current and rising support is at $65-$64.50.

A close below $64 and the 50-day moving average would likely signaling additional selling pressure with risk towards $62.50-$62.

RSI is remains in an uptrend with resistance at 65-70 and the latter representing the August peaks. Support is at 60-55 with a close below 50 signaling additional weakness.

The Spider Gold Shares (GLD) have been in a tight trading range between $121-$122.50 throughout most of January.

Friday’s close at $121.02 represented the session low with near-term and upper support at $121-$120.50 holding.

A move below the latter would be a slightly bearish development with risk towards $120-$119.50.

Lowered resistance is at $121.50-$122. A close above $122.50 would signal renewed strength and a possible breakout towards $123-$125.

The 50-day moving average is on track to clear the 200-day moving average and would form a golden cross, if cleared.

RSI is back in a downtrend with support at 50.

A move below this level would signal additional weakness towards 45-40 with the latter representing the November low. Resistance is at 60.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 46.60% with the session high reaching 48.54%. Lower resistance at 50%-52.5% held.

A move above the latter and the prior peak from the past 3 months would be a bullish development and signal additional strength. Current support is at 42.5%-40%.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 69.44% with the session high kissing 70.03%.

Major and lower resistance from August at 70%-72.50% held with a close above the latter signaling additional momentum.

Rising support is at 67.50%-65% following the surge above the 55%-60% levels. A move back below the latter would signal upcoming weakness.

All the best,
Roger Scott.