U.S. markets settled mostly higher on Friday but finished the week lower to snap two-week winning streaks. Volatility spiked but settled lower as near-term support and resistance levels held on the rebound off the lows.

The Russell 2000 rallied 1.7% after testing an intraday low of 1,494 for a 2nd-straight session but held its 100-day moving average and is roughly 1% away from its 50-day moving average.

The small-caps fell 1% for the week

The Nasdaq jumped 1.1% after testing a low of 7,084 to breach its 50-day moving average for a second-straight session before holding this level on the rebound afterwards. For the week, the index was lower by 1.1%.

The S&P 500 rose 0.5% after falling below its 100-day moving average before rebounding and closing just shy of resistance at the 2,700 level. The index was down 2% for the week.

The Dow declined 0.3% after trading down to 24,217 to close lower for a 4th-straight session. The blue-chips breached, but held the 100-day moving average into the closing bell while ending the week with a 3.1% loss.

Health Care and Technology gained 1% to led sector strength while Consumer Staples added 0.8%. Real Estate an Utilities slipped 0.3% while Materials dipped 0.1% and were the only laggards.

For the week, Materials were off 3.8% and Industrials gave back 3.3% while Utilities fell 2.8%. Consumer Discretionary, Energy and Real Estate were lower by 2.7%. There were no sectors that closed the week higher.

Nearly 95% of the S&P 500 members that have reported Q4 earnings account for 97% of the index’s total market capitalization.

Total earnings reported are up 14% from the same period last year on 8.5% higher revenues, with 77.2% topping EPS estimates and 76% 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 8.6% higher revenues.

Q4 earnings growth for the Energy sector is the highest of all sectors, with total earnings for the sector up 157.2% from the same period last year on 23.8% 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 the Technology sector, with total Q4 earnings for the sector expected to be up 23.6% on 11.1% higher revenues.

Finance sector earnings are expected to be up 0.6% on 4% year-over-year growth in revenues.

For the small-cap S&P 600 index, Q4 results from just over 80% of its members have earnings up 18% on 9.1% higher revenues. The proportion of positive EPS and revenue surprises are at 66.5% and 71.7%, respectively.

For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.7% on 4.8% higher revenues, and would follow 0.7% earnings growth on 3% higher revenues in 2016.

Index earnings are expected to be up 20.4% in 2018 and 9.7% in 2019.

Global Economy – European markets fell for a fourth-straight session and ahead of two major political events this weekend as Italy heads to the polls in a general election, while a vote by the Social Democratic Party could decide Germany’s government.

France’s CAC 40 tanked 2.4% and Germany’s DAX 30 sank 2.3%. The Stoxx Europe 600 fell 2.1% and the Belgium20 dropped 1.9%. UK’s FTSE 100 sank 1.5%.

Eurozone January PPI was up 0.4% month-over-month and 1.5% year-over-year, slightly below expectations of 0.4% and 1.6%, respectively.

German January retail sales unexpectedly fell 0.7% month-over-month, well below forecasts for a rise of 0.7%.

British Prime Minister Theresa May will outline her much-anticipated vision for the U.K.’s post-Brexit relationship with the European Union over the weekend.

Asian markets were lower across the board on greater fears of an escalation of trade protectionism following President Trump’s proposed steel and aluminum tariffs. Japan’s Nikkei stumbled 2.5% while Hong Kong’s Hang Seng was down 1.5%.

South Korea’s Kospi tumbled 1% and Australia’s S&P/ASX 200 fell 0.7%. China’s Shanghai gave back 0.6%

Bank of Japan Governor Kuroda said he and members of the policy board believe prices will move to reach their 2% target around 2019.

Based on this projection,he said the BOJ will start thinking about how to exit its monetary stimulus program around the fiscal year starting in Apr 2019.

The Japan January jobless rate fell 0.3 to 2.4%, better than expectations of no change at 2.8%. The January job-to-applicant ratio was flat at 1.59, weaker than expectations of for a slight gain of 0.01 to 1.60.

Consumer Sentiment for February came in at 99.7, down slightly from the 99.9 preliminary reading and shy of expectations of 99.5, but was up 4 points from January’s 95.7 figure.

Baker-Hughes reported the U.S. rig count was up 3 rigs from last week to 981, with oil rigs up 1 to 800, gas rigs up 2 to 181, and miscellaneous rigs unchanged.

The U.S. Rig Count is up 225 rigs from last year’s count of 756, with oil rigs up 191, gas rigs up 35, and miscellaneous rigs down 1 to 0. The U.S. Offshore Rig Count is down 3 rig to 14 and down 4 to 18 year-over-year.

Market Sentiment – Fedspeak for next week has Fed Governor Randal Quarles talking on Monday with New York Fed Dudley along with updates from Governor Brainard and Dallas Fed Kaplan on Tuesday.

Dudley speaks again on a recovery tour of Puerto Rico on Wednesday, while Atlanta Fed Bostic updates the economic outlook.

Boston Fed Rosengren is scheduled to talk on Friday, while Chicago Fed Evans will discuss the current economic outlook and monetary policy.

The iShares 20+ Year Treasury Bond ETF (TLT) traded in negative territory to end the week while bottoming at $118.12. Support at $118-$117.75 held with risk to $116.50-$116 on a move below the latter. Lowered resistance is at $119-$1119.50.

RSI is back in a downtrend after failing resistance at 50.

Support is at 40 with risk to 30 depending on momentum. The technical setup remains bearish following the death-cross that formed in early February with the 50-day moving average falling below the 200-day moving average.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) traded down to $242.16 with mid-February support and the 100-day moving average holding.

A close below $242-$241.50 could lead to a further backtest towards $240-$235.

Near-term resistance is at $247-$247.50 with a close above the latter being a slightly bullish development and signaling another possible short-term bottom.

RSI is trying to hold near-term support at 40 with a close below this level being a bearish signal for another backtest towards 30 and February lows. Resistance is at 50.

The Energy Select Sector Spider (XLE) rebound off its low of $65.65 to finish slightly higher but below its 200-day moving average.

Continued closes above resistance at $67-$67.25 would get a prior trading range up to $69 in play. Support is at $66-$65.50 with a close below the latter being a bearish development with risk to $65-$64.50.

RSI is trying to clear resistance at 40-45 and prior November support levels. There is still risk to 30-25 of 35 fails.

The percentage of S&P 500 stocks trading above the 200-day moving closed Friday at 60.83% after bottoming at 56.46% intraday.

There is risk to 55%-50% on continued weakness with the February low at 47.32%. Resistance is at 62.5%-65% with the latter representing prior mid and late February support.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average is currently at 47.11% following Friday’s low of 31.06% and rebound off early February support at 30%-25%.

Last month’s low reached 26.92. Resistance is at 50% with room to run up to 60% if momentum can hold into Monday”s open.

All the best,
Roger Scott