U.S. markets continued their run into blue-sky territory as the Dow and S&P 500 closed at fresh all-time highs on Friday for their 6th-straight week of gains. The Nasdaq also set a record peak and is on a 4-week winning streak. Meanwhile, the Russell 2000 rebounded to end the week in positive territory but fell shy of a lifetime high by 2 points.

The Financials led Friday’s sector leaders after rising 1.2%, and 1.4% for the week. Consumer Staples were down 0.2% with the sector falling 0.8% for the week, along with Energy.
  
Global Economy – European markets closed higher with gains limited on carry-over support from the rally in U.S. stocks. The Belgium20 gained 0.4% while France’s CAC 40 was up 0.1%. The Stoxx Europe 600 advanced 0.3% and Germany’s DAX 30 added a point, or 0.01%. UK’s FTSE 100 climbed a fifth-point.
ECB Governing Council member Nowotny said that it would be dangerous to make an abrupt full stop in asset purchases and that the ECB will take the foot off the gas pedal slowly.
German Sep PPI rose +0.3% month-over-month and +3.1% year-over-year, stronger than expectations of +0.1% and +2.9%, respectively, and the largest increase in 5-months.
Asian markets settled higher with Japan’s Nikkei rising 0.04% while closing in the green for the 14th-straight session for its longest winning streak since 1961. Hong Kong’s Hang Seng Index surged 1.2% while South Korea’s Kospi gained 0.7%. China’s Shanghai index advanced 0.3% and Australia’s S&P/ASX 200 added 0.2%.
U.S. existing home sales rose 0.7% to 5.39 million in September versus expectations for a rise to a 5.30 million.
 
The NY Fed’s NowCast model estimated Q3 growth of 1.46%, down from 1.70% set a week ago, while the Q4 growth rebound was cut to 2.61% from 2.91% previously.
 
Baker Hughes reported that the U.S. rig count is down 15 rigs from last week to 913, with oil rigs down 7 to 736, gas rigs down 8 to 177, and miscellaneous rigs unchanged.
The September Treasury Budget checked in at $8.0 billion versus consensus of $3.0 billion.
 
Market Sentiment – Fed funds futures continue to suggest little likelihood for action at the October 31st/ November 1st FOMC meeting, but a December hike is pretty much a done deal with implieds suggesting an 85% probability. Two tightenings are expected in 2018, with about a 25% risk for a third, as was forecast by the Fed’s dot plot.
The iShares 20+ Year Treasury Bond ETF (TLT) reversed course after tumbling to a low of $123.64. Backup support at $124-$123.50 held with a close below $123 and the early October low being a bearish development. The 200-day moving average is at $122.
The 50-day moving average is showing signs of rolling over with fresh resistance at $124.50-$125. RSI remains in a downtrend and appears headed towards support at the 35 level.
 
Market Analysis- The Spiders Dow Jones Industrial Average ETF (DIA) tapped a lifetime high of $233.13 on Friday with fresh resistance now at $233.50-$235. We mentioned continued closes above $227.50 could lead to a run towards $230 which cleared mid-week.
This level will try to serve as support on a pullback. RSI remains at overbought levels near 90 following the breakout above the late July and early August highs.
The Financial Select Sector Spiders (XLF) surged to a 10-year high of $26.66 with decade-long resistance at $26.50-$26.75 holding. Continued closes above the latter could lead to a continued rally towards $28-$30. Current support is at $26.50-$26.25 with a move $26 signaling a short-term top.
RSI is above 70 and is pushing late September and early October highs. Overbought conditions reached 80-85 last November/ December.
The percentage of S&P 500 stocks trading above the 50-day moving average is currently at 76% and a 7-month high. This area served as prior resistance in mid-June and mid-July. The February peak reached 78% and the one-year high pushed 82% in early January.
A move below 70% would be a bearish signal and when the S&P 500 would start to show signs of topping out. Last Thursday’s low reached 71%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 67%. Prior resistance at 72.5%-73% and mid-August/ September failed mid-week. A move back below 66-65% could signal upcoming market weakness for Tech.
These levels represent support from early August with risk to 60%, if breached.
All the best,
Roger Scott