U.S. markets showed strength throughout much of Friday’s action following reports the U.S. and China have further made concrete progress on the text of the trade agreement between the two sides.

The major indexes reached session highs midday while holding the majority of the gains into the closing bell and wrapping up a solid week.

Volatility continues to ease as the VIX set another 2019 low while confirming near-term market strength.

The Nasdaq jumped 0.8% after trading just south of 7,715 and a fresh 2019 high.

Prior and major resistance from early October at 7,700 was cleared but held with continued closes above this level keeping 7,750-7,800 in play.

The Dow was up 0.5% following the intraday run to 25,927.

Mid-February and lower resistance at 25,750-26,000 was cleared and held with continued closes above the latter being a bullish signal for higher highs.

The S&P 500 also added 0.5% after reaching a high of 2,830 and a new 2019 peak.

Fresh and lower resistance from early October at 2,825-2,850 was cleared but held with continued closes above the latter leading towards 2,875-2,900.

The Russell 2000 climbed 0.3% after trading an midday peak of 1,563.
Fresh and lower resistance at 1,560-1,570 was cleared but held with a move above the latter getting 1,575-1,600 and a prior 9-session trading range back in focus.

For the week, the Nasdaq rallied 3.8% while the S&P 500 surged 2.9%.

The Russell 2000 was up 2.1% and the Dow tacked on 1.6%.

Technology was the strongest sector on Friday after soaring 0.9% while Consumer Discretionary rose 0.3%.

Real Estate and Industrials sank 1% and 0.9%, respectively, to lead sector laggards.

For the week, Technology zoomed 3.6% while Real Estate and Healthcare soared 2.9% and 2.6%.

There were no sector laggards.

The 2019 Q1 earnings season is roughly a month away with the big banks kicking-off the latest reporting cycle in mid-April.

However, some companies have already starting announcing numbers there will be roughly two dozen companies reporting before then.

Expectations are that earnings will actually decline in Q1, after many quarters of very strong growth.

Growth got a huge boost last year from the tax-cut legislation, but it was more impressive in 2017 when there was no such support.

If actual 2019 Q1 earnings growth turns out to be negative, it will be the first earnings decline since the second quarter of 2016.

Total earnings for the S&P 500 index are expected to decline -3.5% from the same period last year on 4% higher revenues.

This would follow 13.4% earnings growth in 2018 Q4 and a quarterly growth pace that was roughly double the Q4 pace in the first three quarters of the year.

As far as the two largest earnings contributing sectors, the Finance sector is expected to have a barely positive showing while earnings growth is expected to be negative for the Technology sector.

Total earnings for the Tech sector in the S&P 500 are expected to be down -9.9% from the same period last year on 2.9% higher revenues.

Global Economy – European markets closed in positive territory as the UK parliament voted for delay in Brexit rather than a hard break, which temporarily relieved some tension.

France’s CAC 40 rose 1% while the Belgium20 and Germany’s DAX 30 were higher by 0.9%. The Stoxx 600 Europe added 0.7% and UK’s FTSE 100 advanced 0.6%.

Eurozone inflation was 1.5% year-over-year.

Asian markets were mostly higher following progress on trade talks between VP Liu He, and U.S. reps Mnuchin and Lighthizer.

Additionally, Chinese legislators approved a new law against the forced transfer of technology by foreign companies, which has been a major complaint by the U.S. and other countries.

South Korea’s Kospi and China’s Shanghai surged 1%.

Japan’s Nikkei was up 0.8% and Hong Kong’s Hang Seng gained 0.6%. Australia’s S&P/ASX 200 edged down 0.1%.

The Bank of Japan kept its monetary policy steady, as expected, with the short-term interest rate remaining at -0.1%.

The JOLTS report showed job openings rose 102,000 to 7,581,000 in January, another record high, and above forecasts of 7,200,000.

It represented the 10th-straight reading over 7 million as the rate rose to 4.8% from 4.7%. Hirings were up 84,000 to 5,801,000 following the prior 104,000 drop to 5,717,000 with the rate also increasing to 3.9% from 3.8%.

Quitters increased 99,000 to 3,490,000 after rising 12,000 to 3,391,000 with the rate steady at 2.3%.

Consumer Sentiment rose 4 points to 97.8 in March, topping expectations of 96. Strength was broadbased, with the current conditions index at 111.2 from 108.5. Expectations were at 89.2 from 84.4.

The 12-month inflation gauge slowed to 2.4% from 2.6% while the 5-year price index accelerated to 2.5% from 2.3%.

Industrial Production edged up 0.1% in February, missing forecasts for a rise of 0.4%. Capacity utilization dipped to 78.2% from 78.3% while Manufacturing production declined 0.4% after falling 0.5% in January.

Weakness was registered in motor vehicles and parts, which slid 0.1% following the prior 7.6% drop.

Machinery production fell 1.9% versus the prior 0.2% gain, with computer and electronics rising 1.4% from -0.2%. Utilities bounced 3.7% from -0.9%. Mining rose 0.3%, the same as in January.

Empire State manufacturing index fell 5.1 points to 3.7 in March, missing expectations for a print of 10 and the lowest since May 2017.

The employment component improved to 13.8 from 4.1, though the workweek fell to -3.4 from 2.5. New orders dropped to 3 from 7.5.

Prices paid picked up to 34.1 from 27.1, with prices received slipping to 18.1 from 22.9.

The 6-month ahead outlook index declined to 29.6 from 32.3, with employment at 17.6 from 19.1; new orders at 29 from 35.7; prices paid were 40.6 from 37.1, and prices received at 23.9 from 30.7. Capex was at 28.3 from 29.3.

New York Fed’s Nowcast model cut Q1 GDP estimate to 1.37% from 1.4% previously, while seen expanding at 1.5% in Q2 versus 1.51% previously.

Baker Hughs announced the U.S. rig count was down 1 rig from last week to 1,026 rigs, with oil rigs down 1 to 833 and gas rigs unchanged at 193.

The U.S. Rig Count is up 36 rigs from last year’s count of 990, with oil rigs up 33 and gas rigs up 4. The U.S. offshore rig Count was unchanged at 22 rigs and up 9 rigs year-over-year.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2 session slide after trading to a high of $121.95.

February and major resistance at $122 held with continued closes above this level getting $122.50-$123 in play.

Current support is at $121.50-$121 with a move below $120.75 and the 50-day moving average being a slightly bearish signal.

RSI is back in an uptrend with resistance at 60.

A move above this area would signal additional strength towards 65 and the January/ February peak. Support is at 50.

Market Analysis – The Spider S&P 500 ETF (SPY) closed in the green for the 4th time in 5 sessions following the intraday push to $282.21.

Prior resistance from late August at $282-$282.50 held with a move above the latter getting $284.50-$285 in the mix.

Current support is at $280-$279.50.

A move below the latter opens up risk towards $278-$277.50. The 50-day moving average is on track to clear the 200-day moving average to form a golden cross on continued strength.

This is typically a bullish signal for higher highs.

RSI is pushing 70 and February resistance.

A move above this level would be a bullish development with additional strength towards 75-80 and January 2018 peaks. Support is at 65-60.

The Health Care Select Sector Spider (XLV) also closed higher for the 4th time in 5 sessions after making a push to $92.14.

Prior and lower resistance from mid-February at $92-$92.50 held. Continued closes above $93 would be a more bullish development and signal a possible breakout towards $94.50-$95.

Current support is at $91.50-$91 with a move below the latter likely leading towards $90-$89.50 and a rising 50-day moving average.

A temporary death cross formed in late February with a close below $88.75 and the 200-day moving average being a bearish development for this technical pattern to redevelop.

RSI is in a slight uptrend with resistance at 60. A move above this level would signaling additional strength towards 65-70 with the latter representing the mid-February and late November peak.

Support is at 55-50 with a move below the latter signaling additional weakness.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 64.07%, up 10%, and session high.

Near-term and lower resistance from earlier this month at 65% held. A move above the 67% level and the early February high would be a slightly bullish development for additional momentum towards 70% and the late August 2018 peak.

Support is at 62.50%-60%. A move below the latter would be a slightly bearish signal for additional weakness.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 78.01%, down 1%, with the session low reaching 77.02%.
Near-term support at 76%-74% held with a move below the latter signaling additional weakness towards the 70%-68% area and the prior Friday low.

Current resistance is at 80%-82.5%. A close above the 83.5% level would be a bullish development for additional strength towards 85%-90% but also signaling overbought levels.

All the best,
Roger Scott.