U.S. markets showed continued strength throughout Friday’s action following solid earnings and forecasts along with renewed optimism over economic growth.

The major indexes failed to clear the previous Friday intraday peaks but were able to extend their weekly winning streak to 5-straight, for the most part.

There wasn’t much reaction following late afternoon news that a deal was reached to reopen the federal government thru mid-February and was likely priced in on the open.

Meanwhile, volatility closed at its lowest level for the month and continues to challenge major support levels.

The Nasdaq surged 1.3% following the second half push to 7,174.

Prior and lower resistance at 7,200-7,250 held with continued closes above the 7,150 level being a bullish signal.

The Russell 2000 also rallied 1.3% after testing an intraday high 1,484.

Lower and upper resistance at 1,465-1,480 were cleared and held to get 1,500 back in play and prior support from mid-November.

The Nasdaq added 0.1% for the week and the Russell 2000 rose a third of a point.

The Dow was higher by 0.8% following the morning push to 24,860.

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

The S&P 500 soared 0.9% after reaching a midday peak of 2,672. Mid-month and lower resistance at 2,675-2,700 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 edged up 0.1% while the S&P 500 slipped 0.2%.

Materials were the strongest sector after advancing 1.9% while Technology was higher by 1.4%.

Utilities and Consumer Staples were the only sector laggards after falling 1.4% and 0.4%, respectively.

For the week, Technology and Financials rose 1% and 0.9%, respectively. Healthcare and Communication Services were down 1.3%.

This will be the busiest week of the 4Q earnings season and will likely be the main force that dictates much of this week’s outcome.

With the 200-day moving averages now in play for the major indexes, chances are they will be tagged on a continuing v-shape recovery off the Christmas Eve lows.

The overall tone and substance of this earnings season has been slightly on the weak side, overall. Results from nearly 25% of the S&P 500 members are already in the books and the trends already established will most likely carry through the rest of this reporting cycle.

Total earnings for the S&P 500 index members that have reported are up 12.4% from the same period last year on 6.5% higher revenues. Earnings and revenue growth had been 19.2% and 7.9% in the preceding 3Q earnings season at this point.

The reported results are showing 67.3% of the companies are beating EPS estimates but only 58.4% are topping revenue estimates.

For the same period during 3Q earnings, the proportion of positive EPS and revenue surprises was at 80.5% and 61.9%.

Q4 as a whole, combining the actual results from the S&P 500 index companies that have reported with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up 11.2% from the same period last year on 5.4% higher revenues.

This would follow the 25.7% earnings growth on 8.5% higher revenues in 2018’s Q3.

Earnings growth is expected to be in double digits for Energy (66.2%), Finance (19.2%), Construction (23.8%) and Transportation (28.3%) as the strongest growth. Tech sector earnings are expected to decelerate meaningfully in Q4, up 4.2%, after back-to-back quarters of very strong growth.

Three sectors are expected to have lower earnings in Q4 relative to the year-earlier period, led by Autos (-15.3%) and Conglomerates and Utilities (-7.5%).

Global Economy – European markets closed mostly higher despite sour economic news out of Germany.

Germany’s DAX 30 advanced 1.4% while France’s CAC 40 and the Belgium20 rallied 1.1%. The Stoxx 600 Europe gained 0.6%. UK’s FTSE 100 slipped 0.1%.

The German business-climate index fell to 99.1 points in January from 101 points in December, missing forecasts of 100.6.

The German government lowered its growth forecast for 2019 from 1.8% to 1% amid a weakening global economy and the concerns over delays in finalizing Britain’s orderly exit from the European Union.

The government expects growth to rise again to 1.6% in 2020.

Asian markets settled higher and ahead of this week’s key negotiations between the U.S. and China on trade.

Hong Kong’s Hang Seng soared 1.7% and South Korea’s Kospi rallied 1.5%. Japan’s Nikkei jumped 1% and Australia’s S&P/ASX 200 climbed 0.7%. China’s Shanghai added 0.4%.

Durable Goods Orders and New Home Sales were postponed.

Baker-Hughes reported the U.S. rig count was up 9 rigs from last week to 1,059 rigs, with oil rigs up 10 to 862 and gas rigs down 1 to 197.

The U.S. Rig Count is up 112 rigs from last year’s count of 947, with oil rigs up 103 and gas rigs up 9. The U.S. Offshore Rig Count is up 1 rig to 20 and up 3 rigs year-over-year.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) continued its recent zigzag pattern with higher highs and higher lows following Friday’s pullback to $120.32.

Support at $120.50-$120 was split with the former holding into the closing bell. A move below the latter would reopen risk towards $119-$118.50 and a rising 50-day moving average.

Resistance is at $120.75-$121.25 with a close above $121.50 signaling additional strength.

RSI is back in a slight downtrend with major support at 50.

A close below this level would be a bearish development with risk towards 45-40. Resistance is at 55-60.

Market Analysis – The Russell 2000 ETF (IWM) was up for the 2nd-straight session and 6th in the past 8 after trading to an intraday high of $147.64.

Prior and lower resistance at $147.50-$148 was cleared but held with the prior Friday peak reaching $147.92.

Continued closes above $148 and prior late November/ early December support would be a bullish signal for a possible run towards $150-$152.50.

Near-term support is at $146-$145.50. A close below $145 would reopen risk towards $142.50-$142.

RSI is approaching mid-month resistance just south of 65.

A move above this level could lead towards a run at 70 and late August peaks. Support is 60-55. A move below 50 would signal additional weakness.

The Health Care Select Sector Spider (XLV) was up for the 2nd time in 4 sessions and 4 of the past 6 after peaking at $89.25. However, it was the 2nd-straight lower high with resistance at $89-$89.50 getting split but holding.

Continued closes back above $90 would be a more bullish development and signal a possible breakout towards higher highs.

Upper support is at $88.75-$88.25 and a slightly sloping 50-day moving average held.

A close below $88-$87.50 and the 200-day moving average would be a bearish development for lower lows.

RSI is flatlining with 3-week support at 50.

A move below this level would signaling additional weakness towards 45-40 with the latter representing the monthly low. Resistance is at 55-60.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 43.68% with the session high reaching 45.63%.

Lower resistance at 45%-47.50% held. A move above 48.54% and the prior Friday peak would be a bullish development and signal additional strength towards 50%-52.50%.

Current support is at 42.50%-40%.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 73.78% with the session high tapping 77.66%.

Major and lower resistance from late June at 77.50%-80% held with a close above the latter signaling additional momentum.

Rising support is at 72.50%-70% with the latter representing early December support.

All the best,
Roger Scott.