U.S. markets showed continued momentum on Friday’s open and were looking to extend a 3-session win streak following a strong jobs number.
However, continued trade rhetoric and near-term resistance levels were too much to overcome with the major indexes rolling over an hour afterwards.
The small-caps made a late session comeback to avoid a loss and the overall damage was limited as the major indexes still managed to finish the week with gains.
Volatility remains slightly elevated with the bulls and bears seesawing for leverage ahead of the midterm elections.
The Russell 2000 climbed 0.2% after reaching a peak of 1,557 shortly after the opening bell.
Both upper and lower resistance at 1,550-1,560 held into the closing bell with the index roughly 5% away from clearing its 200-day moving average.
The Nasdaq tumbled 1% despite a 3rd-straight higher high and run to 7,466.
The close below the 7,400 level and fade to 7,298 held near-term support at 7,300-7,275.
For the week, the Russell 2000 rallied 4.4% and the Nasdaq advanced 2.7%, their first weekly gains since mid and late September, respectively.
The S&P 500 came within 8 points of clearing its 200-day moving average but sank 0.6% on the backtest to 2,700.
Upper support at 2,700-2,675 held by a half-point with a move below 2,650 being a bearish signal.
The Dow fell 0.4% despite trading to a morning high of 25,578.
The pullback to 25,078 held lower and shaky support at 25,250-25,000 on the 2nd-straight close above the 200-day moving average holding.
Both the Dow and the S&P 500 were up 2.4% for the week.
Consumer Discretionary was the only sector that closed higher on Friday after adding 0.4%.
Technology tanked 2% while Communication Services sank 1% to lead sector laggards.
For the week, Materials zoomed 6.1% while Consumer Discretionary and Energy soared 4.4%.
Healthcare and Industrials jumped 2.1% and 1.9%, respectively. Utilities were the only sector laggard after falling 0.4%.
The 3Q earnings picture is just past the halfway mark heading into the first full week of November.
Total earnings for the 313 S&P 500 members that have reported results are up 22.7% from the same period last year on 8.4% higher revenues, with 78% topping EPS estimates and 62.6% beating revenue estimates.
Looking at Q3 as a whole, total earnings for the index are expected to be up 23.2% from the same period last year on 7.6% higher revenues, the 6th time in the last 7 quarters of double-digit earnings growth.
For the small-cap S&P 600 index, Q3 results from 264 index members or 43.9% of its members have been reported.
Total earnings are up 24.9% on 8.1% higher revenues, with 67% topping EPS estimates and 61% beating revenue estimates.
For the small-cap index as a whole, total Q3 earnings are expected to be up 19.1% from the same period last year on 7.2% higher revenues.
The Finance sector, which is an even bigger earnings contributor to the small-cap index compared to the S&P 500 index, is expected to see 44% higher earnings on 7.4% higher revenues.
For full-year 2018, total earnings for the S&P 500 index are expected to be up 21% on +6.7% higher revenues. For full-year 2019, total earnings are expected to be up 9.7% on 5.6% higher revenues.
Global Economy – European markets closed mostly higher while extending a strong November start on prospects of easing trade tensions.
The Belgium20 was higher by 0.5% and Germany’s DAX 30 gained 0.4%. The Stoxx 600 Europe and France’s CAC 40 advanced 0.3% while UK’s FTSE 100 declined 0.3%.
The Eurozone October Markit manufacturing PMI was revised downward to 52 from the previously reported 52.1, and the slowest pace of expansion in 2 years.
The German September import price index rose 0.4% month-over-month and 4.4% year-over-year, slightly weaker than expectations of 0.4% and 4.5% respectively.
The UK October Markit/CIPS construction PMI was up 1.1 to 53.2, topping forecasts for a dip of 0.1 to 52.
Asian markets closed sharply higher on word President Trump reportedly asked key cabinet secretaries to draw up a draft to signal a ceasefire in the trade conflict with China.
President Trump seems eager to reach an agreement on trade with Chinese President Xi Jinping when they meet at the G-20 summit in Argentina later this month.
Hong Kong’s Hang Seng rocketed 4.2% while South Korea’s Kospi soared 3.7%. China’s Shanghai galloped 2.7% and Japan’s Nikkei rose 2.6%.
Australia’s S&P/ASX 200 edged up 0.1%.
Non-farm Payrolls added 250,000 new jobs in October, beating expectations for a rise of 202,000.
The unemployment rate remained flat at 3.7%, while the report showed year-over-year wage gains rising to 3.1%, slightly above estimates of 3%.
Factory Orders rose 0.7% in September following August’s 2.6% jump, but topping estimates of 0.5%. The 0.8% gain in Advance durable orders was nudged down to 0.7%. Transportation orders increased 1.9% versus August’s 13.3% surge.
Excluding transportation, orders edged up 0.4%, the same as in August. Nondefense capital goods orders excluding aircraft dipped 0.1% while shipments climbed 0.9%. Nondefense capital goods shipments ex-air also slipped 0.1%, equaling August’s dip.
Inventories increased 0.5% from the prior 0.1% gain while the inventory-shipment ratio slid to 1.33 from 1.34.
Baker-Hughes reported the U.S. rig count was down 1 rig from the prior week to 1,067, with oil rigs down 1 to 874 and gas rigs unchanged at 193. The U.S. Rig Count is up 169 rigs from last year’s count of 898, with oil rigs up 145 and gas rigs up 24.
The U.S. Offshore Rig Count is down 1 rig to 18 and unchanged at 18 rigs year-over-year.
Atlanta Fed’s Q4 GDPNow estimate was trimmed to 2.9% from 3% previously, compared to the 2.7% Blue Chip consensus.
The New York Fed Q4 Nowcast model grew to 2.61%, up from 2.55% previously following the firm payrolls report.
The International Trade in Goods deficit widened to $54 billion, as expected.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 5-straight sessions after tanking to a fresh 52-week intraday low of $111.90.
March 2017 support at $112-$111.50 held with a move below the latter likely leading to the $111 area and December 2016 lows.
Lowered resistance is at $112.50-$113.
RSI remains in a downtrend with near-term support at 30. A move below the latter could lead to a further backtest towards 25-20 and early October lows. Resistance is at 35-40.
Market Analysis – The Russell 2000 ETF (IWM) extended its winning streak to 4-straight sessions after making a run to $154.89. Fresh resistance at $155-$155.50 held with continued closes above $156 setting up a possible push towards $158-$160 and the 200-day moving average.
Rising support is at $152.50-$152. A move below the latter and prior early October support would be a bearish development for lower lows.
The 50-day moving average remains in a downtrend and could form a death cross in the coming weeks if momentum fades.
RSI is back in an uptrend with resistance at the 50 area and prior September support.
A move above this level would signal additional strength towards 55-60. Support is at 45-40.
The Spider Gold Shares (GLD) closed higher for a 2nd-straight session after reaching a peak of $116.98. Lower resistance at $117-$117.50 held with the former representing late July resistance.
A move above the latter and the late October peak at $117.65 would be a very bullish signal.
Near-term support is at $116-$115.50.
A move below the latter could lead to a quick backtest towards $114.50-$114 and an up trending 50-day moving average.
While it is too early to officially say a bottom for GLD is in, it appears this could be the case. The 52-week low of $111.06 was reached in mid-August with the $111 level holding for 3-straight sessions.
The $112 area held in late September and early October.
RSI has struggled with resistance at the 60 level throughout October and into November.
A close above 65 could lead to a breakout towards 70-75 and January highs. Support is at 55-50.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 23.01% with the low reaching 20.03%. Mid and late October support is at 15%-10% on a move below the the 20% level.
Resistance is at 30%-35% with the former representing Friday’s morning peak. A more bullish outlook would occur on continued closes back above the 40% level.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 44.66% with the low reaching 40.77%. Fresh and upper support at 40%-38% held with a move below the latter signal additional weakness towards 35%-30%.
Resistance is at 45%-50% with the latter representing late June support. Continued closes above 50% would signal additional strength and be a bullish development.
All the best,
Roger Scott.