U.S. markets opened Friday’s session lower with downside momentum into the closing bell despite encouraging trade news.

China said it would suspend an additional tariff on U.S. autos while also confirming it would reduce a 40% charge on U.S. auto imports to 15% for 90 days.

Global growth concerns and slightly disappointing economic news overshadowed the positive development with the major indexes giving up their gains for the week. T

he pullback also pushed the overall market into correction territory for the first time since March 2016. The Dow tanked 2% following the pullback to 24,033.

Upper support at 24,000-23,800 held with a move below the latter signaling additional weakness. The S&P 500 sank 1.9% after testing a 2,593.

Fresh support is at 2,575-2,550 on the close below the 2,600 level with the recent monthly low at 2,583. For the week, the Dow and the S&P 500 fell 1.2%.

The Nasdaq tumbled 2.3% following the backtest to 6,898. November and upper support at 6,900-6,850 held with a close below the latter likely leading to additional selling pressure.

The Russell 2000 dropped 1.5% after testing a fresh 52-week low of 1,407. September 2017 support at 1,400 is now in play with a close below this level signaling additional weakness.

The Russell 2000 stumbled 2.8% for the week while the Nasdaq was down 0.8%. There was no sectors that showed strength on Friday.

Healthcare led sector weakness after declining 3.4% while Technology was down 2.5%. For the week, Utilities and Communication Services were higher by 0.6% and 0.5%, respectively.

Financials and Energy were the weakest sector with declines of 3.5% and 3.1%, respectively. Earnings The Q4 earnings season has gotten underway already, but it doesn’t really heat up until the second week of January with releases from the big banks.

Total Q4 earnings for the S&P 500 index are expected to be up 12.3% from the same period last year on 5.6% higher revenues, with the growth pace meaningfully decelerating from the rate witnessed in the first three quarters of the year.

Q4 estimates have been coming down since the quarter got underway, with the current 12.3% earnings growth expected for the period down from 15.9% at the start of the quarter.

For the small-cap S&P 600 index, total Q4 earnings are expected to be up 7.2% on 6.3 higher revenues. This would follow 33.6% earnings growth on 5.7% revenue growth in Q3. For full-year 2018, total earnings for the S&P 500 index are expected to be up 20.8% on 6.8% higher revenues.

For full-year 2019, total earnings are expected to be up 7.9% on 5.2% higher revenues. Global Economy European markets closed in the red after U.K. PM Theresa May said further EU talks on her Brexit deal were possible despite EU leaders repeatedly saying the withdrawal agreement is not open for renegotiation. France’s CAC 40 dropped 0.9% while the Stoxx 600 Europe stumbled 0.6%.

The Belgium20, Germany’s DAX 30 and UK’s FTSE 100 declined 0.5%. The Eurozone December Markit manufacturing PMI fell 0.4 to 51.4, missing forecasts for no change at 51.8. Eurozone November new car registrations fell 8% to 1,121,000 and year-to-date are up 0.8% to 14,160,000.

Eurozone Q3 labor costs rose 2.5% year-over-year, representing fastest pace of increase in more than 7 years. The German December Markit/BME manufacturing PMI slipped 0.3 to 51.5, missing expectations of 51.7. Asian markets closed lower following much weaker-than-expected economic data out of China.

Japan’s Nikkei was down 2% and Hong Kong’s Hang Seng was lower by 1.6%. China’s Shanghai fell 1.5% and South Korea’s Kospi declined 1.4%. Australia’s S&P/ASX 200 gave back 1.1%. China November industrial production rose 5.4%, missing expectations of 5.9%.

China November retail sale rose 8.1%, below forecasts of 8.8%. The Japan Q4 Tankan large manufacturing business conditions was unchanged at 19, topping estimates for a print of 18. U.S. Economy November Retail Sales rose 0.2% overall, excluding autos. The 0.8% bounce in October was revised up to 1.1%.

The 0.7% October ex-auto climb was bumped to 1%. Sales excluding autos, gas, and building materials were up 0.6% after rising 0.7% in October.

Strength was in non-store retailers, which surged 2.3%, with electronics up 1.4%, and furniture rising 1.2%. Car sales increased 0.2% after jumping 1.5% previously.

Gas station sales dropped 2.3% versus 3.2% while clothing sales fell 0.2%. Industrial Production climbed 0.6% in November, topping forecasts of 0.3%.

Capacity utilization improved to 78.5% from 78.1% previously. Manufacturing production was unchanged versus -0.1%, with motor vehicles and parts bouncing 0.3% from -3.1%. Machinery production was up 0.5% versus the prior 0.8% gain, while computer/electronics were up 0.2%, erasing October’s 0.2% decline.

Utilities jumped 3.3% versus a 0.2% gain previously, with mining surging 1.7% versus -0.7%. PMI Composite Flash fell 1.4 points to 53.9 in December. The employment component dropped to 53.1 from 55.3 while new orders also slid. The preliminary services index dipped 1.3 points to 53.4 from 54.7.

Service employment rose to 53.3 versus 52.8. The composite gauge declined 1.1 ticks to 53.6 versus 54.7. Employment fell to the lowest since June 2017.

The report noted some survey respondents said heightened economic uncertainty and concerns about the near-term business outlook had contributed to more cautious spending among clients.

Business Inventories rose 0.6% in October with sales up 0.3%, as expected. For September revisions, the 0.3% increase in inventories was bumped up to 0.5%, and the 0.4% rise in sales was nudged down to 0.3%. Retailer inventories increased 1.1% in October, with retailer sales climbing 1.2%.

The inventory-sales ratio edged up to 1.35 from 1.34 previously. Baker-Hughes reported that the U.S. rig count was down 4 rigs from last week to 1,071, with oil rigs down 4 to 873 and gas rigs unchanged at 198.

The U.S. Rig Count is up 141 rigs from last year’s count of 930, with oil rigs up 126 and gas rigs up 15. The U.S. Offshore Rig Count is unchanged at 23 rigs and up 4 rigs year-over-year.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide after trading to a high of $118.77. Prior resistance is at $118.50-$119 was split but held.

Continued closes above $119.25 could signal a possible breakout past $120 and August peaks. Support remains at $118-$117.50.

A close below the latter would be a slightly bearish signal and signal a possible near-term top. RSI is slightly elevated and is signaling overbought levels with resistance at 75-80.

Support is at 65-60.

Market Analysis – The Spider S&P 500 ETF (SPY) was down for the 2nd-straight session following backtest to $259.85. New and upper support at $260-$259.50 held.

A move below the prior Monday low of $258.62 would be a bearish signal with risk towards $257.50-$255 and May/April support levels. Lowered resistance is at $262-$262.50.

A death cross has formed with the 50-day moving average falling below the 200-day moving average.

This is typically a bearish signal for lower lows. RSI is in a downtrend with support at 35-30.

A move below the latter would signal additional weakness towards 25-20 and October lows.

Resistance is at 40.

The Utilities Select Spider (XLU) was down for just the 2nd time in 9 sessions despite making a run to $57.11. Fresh resistance at $57-$57.25 held with the prior session and 52-week peak reaching $57.18.

The fade to $56.49 held rising and upper support at $56.50-$56.25. A close below $56 would be a slightly bearish development and signal a possible near-term top.

RSI is in a slight downtrend with support at 65-60. A close below the latter would signal additional weakness towards 55-50. Resistance is at 70 with continued closes above this level being a near-term bullish signal.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 33% and the session low. Support is at 30%-27.50% with the latter representing October and November lows. Lowered resistance is at 35%-37.5% with a move above 40% signaling additional strength.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 22.66% with the session low tapping 21.86%.

Support is at 22.5%-20% with a move below the latter signaling risk towards 15%-10% and October lows.

Fresh resistance is at 25%-27.5%.

All the best,
Roger Scott.