U.S. markets opened in positive territory to start Friday's action as they tried to regain momentum following the prior session pullback.
The blue-chips showed strength throughout much of the session while the other major indexes started slipping midday while struggling to regain positive territory.
The mixed closed showed nervousness ahead of the weekend with the height of 3Q earnings season starting to unfold.
Volatility remains slightly elevated and is showing signs of higher highs with a major bullish technical pattern in play and a bearish signal for the market.
The Dow gained 0.3% while testing an intraday high of 25,608.
Prior and lower resistance at 25,600-25,800 held with continued closes above 26,000 and the 50-day moving average being a more bullish development.
The S&P 500 slipped a point, or 0.04% after failing resistance at 2,800 by a couple of points.
The slight close back below the 200-day moving average keeps risk open to backup support at 2,750-2,825 in play.
For the week, the blue-chip index gained 0.4% and the S&P 500 rose fractionally, successfully snapping a three-week retreat while
The Nasdaq was down 0.5% after kissing a session low of 7,428.
It was the 2nd-straight close below 200-day moving average with shaky support at 7,400-7,350 on a move below 7,425.
The Russell 2000 extended its losing streak to 3-straight session following the pullback to 1,538. Support at 1,540-1,535 held with a close below the May low of 1,532 being a very bearish signal.
Tech shed 0.6% for the week to extend its losing streak to 3-straight while the small-caps were down 0.3% to extend its weekly losing streak to 5-straight.
Consumer Staples jumped 2.3% to lead sector strength while Utilities and Real Estate were higher by 1.5% and 1%, respectively.
Consumer Discretionary fell 1% led sector laggards. Energy amd Health Care were off 0.9%.
For the week, Consumer Staples zoomed 4.4% while Real Estate jumped 3.3% and Utilities advanced 3.1%. Consumer Discretionary and Energy were down 2% while Materials and Technology gave back 1.2%.
This week's 3Q earnings announcements will have a major impact on the market, with more than 600 companies reporting results, including 154 S&P 500 members. By the end of the week, the mid-point of the Q3 reporting cycle, for the large-cap stocks at least, will be in the books.
Beyond small pockets of weakness, the overall picture for Q3 earnings season is one of all-around strength, with the growth pace of the first-half of the year continuing into Q3, and management commentary about underlying business conditions still favorable.
Additionally, estimates for the current 4Q period appears to be holding up pretty well, though it is slightly early on that front.
The Q3 results from nearly 17% of the S&P 500 members, combined account for 22.3% of the index's total market capitalization.
Total earnings for these 84 companies that have reported are up 19.2% from the same period last year on 8.4% higher revenues, with 82.1% beating EPS estimates and 61.9% topping revenue estimates.
The proportion of these companies beating both EPS and revenue estimates is just under 55%.
Combining the actual results for the 84 companies with estimates for the still-to-come 416 index members, total S&P 500 earnings are expected to be up 19.2% from the same period last year on 7.2% higher revenues.
The Q3 growth pace represents a deceleration from the first half of the year, but it is nevertheless very strong.
Global Economy - European markets closed mostly lower, led by a sell-off in Italian stocks and a jump in Italian government bond yields, after the European Commission said the Italian coalition government's spending plans were excessive and questioned its budget proposal.
France's CAC 40 fell 0.6% and the Belgium20 was lower by 0.5%. Germany's DAX 30 was down 0.3% and the Stoxx 600 Europe slipped 0.1%. UK's FTSE 100 gained 0.3%
The EU commission said it will give the Italian government until this Monday to provide an explanation for the obvious significant deviation from the rules and reduce its budget deficit target.
Asian markets were mixed as China's top financial officials tried to shore up confidence in the markets. PBOC Governor Yi Gang said they are studying measures to ease companies' financing difficulties and will use policy tools to support banks' credit expansion.
Meanwhile, Vice Premier Liu He said that Chinese equity valuations had dropped to historically cheap levels after testing nearly 4-year lows.
China's Shanghai rallied 2.6% and Hong Kong's Hang Seng rose 0.6%.
South Korea's Kospi added 0.4%. Japan's Nikkei dropped 0.6% and Australia's S&P/ASX 200 dipped 0.1%.
China September industrial production rose 5.8% year-over-year, missing expectations of 6% and the slowest pace of increase in nearly 3 years.
China Q3 GDP rose 6.5% year-over-year, missing estimates of 6.6% and the slowest pace of expansion in over 9 years.
China September retail sales rose 9.2% year-over-year, topping forecasts of 9%.
Japan September national CPI rose 1.2% year-over-year, weaker than expectations of 1.3%.
September national CPI ex-fresh food climbed 1% while national CPI ex-fresh food & energy rose 0.4%, both matching estimates.
September Existing Home Sales fell 3.4% to 5.150 million, much weaker than expectations for a rise of 0.2% to 5.35 million and the 6th-straight monthly drop.
Single family home sales fell 3.4% to 4.58 million following a 0.2% while condo/coop sales were down 3.4% as well to 570,000.
Regionally, sales were 5.4% lower in the South, likely impacted by Hurricane Florence, with the West sliding 3.6%, and the Northeast declining 2.9%. The Midwest was unchanged. The months' supply of homes inched up to 4.4 from 4.3.
The median sales price declined to $258,100 versus $265,600, but is up 4.2% year-over-year.
New York Fed Q3 GDP Nowcast estimate fell to 2.13% from 2.25% previously, while shrinking to 2.43% for Q4 from 2.77% previously. The weakest component in the model was retail sales and food services, which slipped 0.05%.
Baker-Hughes reported the U.S. rig count was up 4 rigs from the prior week to 1,067, with oil rigs adding 4 to 873, gas rigs up 1 to 194, and miscellaneous rigs down 1 to 0.
The U.S. Rig Count is up 154 rigs from last year's count of 913, with oil rigs up 137, gas rigs up 17, and miscellaneous rigs unchanged at 0. The U.S. Offshore Rig Count is down 3 rigs to 20 and unchanged at 20 rigs year-over-year.
Market Sentiment - Dallas Fed Robert Kaplan said the economy is basically meeting its dual mandate on employment and inflation, though he's skeptical about further wage growth from current levels.
He also thinks the economy could benefit from immigration reform rules similar to those in Canada. He's not so worried about a financial crisis or imminent recession due to a strong consumer sector.
Kaplan went on to say 2 or 3 additional rate hikes may occur by June 2019, but he is not committed to the need for more rate hikes above neutral, depending on productivity.
He noted that longer-term U.S. bond yields reflect global liquidity and skepticism about medium-to-longer term growth.
Kaplan doesn't expect situations in Turkey or Argentina to become contagion risk for the financial markets, while he suggested that it has become more expensive for overseas investors to hedge against dollar-denominated assets.
He also warned that rising U.S. indebtedness is a risk due to uncertainty about foreign demand for U.S. Treasuries.
Atlanta Fed Raphael Bostic said trade policy remains a risk to the outlook, given uncertainty around the rules that might emerge. He sees no sign of dark clouds on the horizon that could trip an economy that is chugging along.
Bostic said that the Khashoggi incident could pose possible risk to the outlook, if it leads to sanctions.
The iShares 20+ Year Treasury Bond ETF (TLT) tested a lower low for the 4th-straight session after bottoming at $113.42.
Fresh support at $113.50-$113 held with a move below $112.50 representing fresh 52-week lows.
Lowered resistance is at $114-$114.50. Both the 50-day and 200-day moving averages remain in downtrend after forming a death cross in late September.
RSI is remains in a slight downtrend with current support at 35-30 and a close below the latter confirming additional weakness.
Resistance is at 40 and a level that has been holding since mid-September.
Market Analysis - The Spider Small-Cap 600 ETF (SLY) extended its losing streak to 3-straight sessions following the backtest to $68.19. The previous Friday intraday low tapped $67.96.
Major support at $68 held with a close below this level likely signaling additional weakness towards $67-$66.50 and early May lows.
Resistance is at $69.50-$70 followed by $71 and the 200-day moving average.
Continued closes above the latter levels would be a more bullish development and signal a possible bottoming process.
RSI is still looking a tad weak and is trying to clear resistance at 30-35.
A close above the latter would signal additional strength and be a slightly bullish sign. Support is at 25-20 on continued weakness.
The iShares PHLX Semiconductor ETF (SOXX) was weak for the 3rd-straight session following the pullback to $165.47. Near-term and upper support at $165.50-$165 held.
A close below the latter would signal additional weakness towards $162.50-$162 and February support levels.
Lowered resistance is at $167.50-$168 with continued closes above $170 being a more bullish development. The 50-day moving average has been rolling over to start the month and is on track to fall below the 200-day moving average.
The would form a death-cross and is a technical signal for lower lows.
RSI is in a downtrend with support at 30. A close below this level gets 25-20 and the monthly lows back in the mix.
Resistance is at 35-40.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 22.42% with the low reaching 22.04%. Support at 17.5%-15% held with risk to 10%-9.50% on panic selling.
The latter represent the monthly low with late February support at 7.5% on a move below this level.
Resistance is at 27%-30% with continued closes above the latter signaling additional strength and being a more bullish development.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 45.63% with the session low tapping 44.66%. There is risk to the 40%-37% area with the 36.89% representing the monthly low.
The June 2016 low also reached the latter with a move below this level signaling lower lows. A close back above resistance at 45%-50% would signal another possible short-term bottom.
All the best,
Roger Scott.