U.S. markets traded mostly higher for a 6th-straight session following Friday’s gains with the major indexes continuing their v-shape recovery.

It was the second-straight up Friday for the Dow and S&P 500 and showed cash is still coming back into the market and off the sidelines.

More importantly, the slight overall gains came ahead of a 3-day holiday weekend as Wall Street will be closed on Monday for President’s Day.

The Russell 2000 climbed 0.4% and showed the most strength after trading to a midsession high of 1,551. The small-caps closed just 4 points below its 50-day moving average after rallying 4.3% for the week.

The Dow climbed 0.1% after testing a high of 25,432 while the S&P 500 added a point, or 0.04% after reaching an intraday peak of 2,754.

For the week, the Dow rose 4.3% to post its biggest one-week percentage rise since November 2016. The S&P 500 also gained 4.3% for its best week since January 2013.

The Nasdaq showed strength throughout the first half of action while testing a top of 7,303 before turning south to finish 0.2% lower on the close.

The index easily held the 7,200 level on the pullback while closing above its 50-day moving average for the third-straight session.

Utilities showed continued strength with the sector rising 0.9% while Health Care and Real Estate added 0.7%. Consumer Discretionary and Materials led sector laggards after giving back 0.5% and 0.4%, respectively.

All major sectors closed in positive territory for the week and were led by Technology’s 5.8% surge.

Financials and Industrials rallied 4.7% while Consumer Discretionary and Health Care soared 4%.

The Q4 earnings season continues to show very strong revenue momentum, a preponderance of positive surprises and revisions to estimates for the current and coming quarters.

Total Q4 earnings for the just over 70% of S&P 500 members that have reported results thus far are up 14.5% from the same period last year on 9% higher revenues, with 78.2% topping EPS estimates and 75.4% beating revenue estimates

For Q4 as a whole, total earnings for the S&P 500 index are expected to be up 13.9% from the same period last year on 8.2% higher revenues. Q4 earnings growth for Energy is the highest of all sectors, with total earnings for the sector zooming 150.8% from the same period last year on 23.2% higher revenues.

Excluding the Energy sector, total Q4 earnings for the rest of the S&P 500 index would be up 11.7%

Earnings growth is expected to be strong for Technology, with total Q4 earnings for the sector expected to be up 22.6% on 10.6% higher revenues.

Finance sector earnings are expected to be up 5.2% on 3.8% year-over-year growth in revenues.

For the small-cap S&P 600 index, Q4 results from roughly 45% of its members show earnings are up 12.4% on 10.4% higher revenues.

The proportion of positive EPS and revenue surprises are at 70% and 72%, respectively.

For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.3% on 4.1% higher revenues, which would follow 0.7% earnings growth on 3.5% higher revenues in 2016.

Index earnings are expected to be up 20.2% in 2018 and 9.6% in 2019.

Global Economy – European markets showed continued strength despite mixed economic data while posting solid weekly gains.

France’s CAC 40 and the Stoxx Europe 600 jumped 1.1% while Germany’s DAX 30 was higher by 0.9%. The Belgium20 and UK’s FTSE 100 rose 0.8% with the latter index snapping a four-week losing streak.

ECB Executive Board member Coeure said the ECB has a clear expectation in the Governing Council and that policy rates won’t be hiked before the end of asset purchases.

He went on to say there is unanimity in the Governing Council on upholding this sequence.

The German January wholesale price index rose 0.9% month-over-month and 2% year-over-year.

U.K. retail sales grew by 0.1% for January following a 1.4% monthly decline in December, and below forecasts for monthly growth of 0.6%.

Asian markets were higher in limited action as Hong Kong’s Hang Seng, South Korea’s Kospi and China’s Shanghai remained closed for the Lunar New Year holiday. Japan’s Nikkei was high by 1.2% while Australia’s S&P/ASX 200 slipped 0.1%.

Housing Starts climbed 9.7% to a 1.33 million unit rate in January while building permits rose 7.4% to a 1.4 million unit rate.

Import Prices rose 1.0% in January, while Export Prices increased 0.8%, both of which were above expectations.

The University of Michigan’s consumer sentiment index rose 4.2 points to 99.9 in the preliminary February reading.

E-Commerce Retail Sales were up 3.2% for the quarter.

Baker Hughes reported the U.S. rig count was unchanged at 975 rigs from last week at 975, with oil rigs up 7 to 798, gas rigs down 7 at 177, and miscellaneous rigs unchanged.

The U.S. Rig Count is up 224 rigs from last year’s count of 751, with oil rigs up 201, gas rigs up 24, and miscellaneous rigs down 1 to 0. The U.S. Offshore Rig Count is up 2 rigs and unchanged year-over-year.

Ceveland Fed Inflation Nowcast for February CPI projects a 0.16% headline increase, along with a 0.15% gain for the core.

Additionally it shows a 0.39% jump for January PCE, with the core up 0.33%, though Febuary is estimated at 0.13% for both measures.

Market Sentiment – Fed Policy Outlook: A March rate hike is pretty much a done deal. The next big event for the outlook will be Fed Chairman Jerome Powell’s Monetary Policy Report set for February 28th before the House Financial Services Committee.

This will be Powell’s first real opportunity to lay out his strategy, which is likely to be fairly close to former Fed Chair Janet Yellen’s, at least initially.

This would mean support for the FOMC’s normalization path, including three tightenings this year, as indicated by the dot plot, and continued roll-off of quantitative easing (QE) holdings at the previously outlined pace.

Powell’s main challenge however, will be different from Yellen’s in that the economy is growing at a faster pace, while fiscal policies have been legislated and infrastructure spending may be added to the mix.

Analysts expect Powell to hold a cautiously optimistic outlook on growth, while vowing to keep inflation in check.

The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the second-straight session after testing a high of $119.21.

Resistance at $118.75-$119 held with into the closing bell with a close above the latter being a slightly bullish signal. Support remains at $118-$117.50 with continued risk to $116.50-$116 and fresh 52-week lows on a move back below the latter.

RSI is still struggling with near-term resistance at the 40 level. February and October support is at 30 with a move below this level being a bearish development.

The 50-day moving average has now fallen below the 200-day moving average to officially for a death-cross. This is typically a bearish signal for lower lows.

Market Analysis – The Russell 2000 ETF (IWM) closed higher for a 6th-straight session after peaking at $154.29. Resistance at $153.50-$154 and the 50-day moving average held with continued closes above the latter being a bullish development for a run at $156.

Near-term support is at $152.50-$152 with risk to $150 on a move below the latter.

RSI is trying to hold resistance at 50 with continued closes above this level being a bullish signal for a possible push towards 60.

There is risk to 40 on a move back below 50.

Bitcoin Investment Trust (GBTC) recently converted a 91-for-1 stock split of bitcoin. This drastically reduced making GBTC more accessible to retail investors at current levels following the split on January 26th.

The current chart shows GBTC is testing near-term resistance at $19.50-$20.50 and the 50-day moving average for the second-straight session.

Continued closes above the latter could lead to a short-term recovery towards the $22.50-$25 depending on momentum. Short-term support is at $17-$16.50 with a close below the latter signaling additional weakness towards $15.

RSI is trying to hold support at 50 and a level that served as prior support in early November and December. Continued closes above this level would be a slightly bullish development for a run towards 70.

A move below 50 would signal additional upcoming weakness with risk to 40-30.

The percentage of S&P 500 stocks trading above the 200-day moving is currently at 69.3% with Friday’s high reaching 70.89%.

Continued closes above this level could lead to a quick run towards resistance at 75% and previous support levels throughout December. A close back below the 65% level would be a slightly bearish development.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average is currently at 55.76%. Resistance is at 60% with Friday’s high tapping 59.61%.

Continued closes above this level would signal additional strength for a possible push towards 70%. Support is at 55%-50% with a move below the latter signal additional weakness.

All the best,
Roger Scott