U.S. markets were weak to start Friday’s session despite a blowout GDP number as mixed corporate earnings weighed on the major indexes. The rebound off the lows in the second half of action held into the closing bell to give the bulls the overall weekly win.

The blue-chips lagged for the week, and the small-caps remain below a key resistance level, but the overall market momentum remains intact. A decisive close in record territory for the Dow and the Russell 2000 would be another positive sign for continued market strength over the near-term.

The Russell 2000 rallied 1% following the late day run to 1,592 and close just below this level.

Lower resistance from February at 1,590-1,600 was cleared and held with continued closes above the latter leading towards a breakout to 1,625-1,640.

The S&P 500 advanced 0.5% to a fresh 2019 and session high of 2,939 into the closing bell.

Lower resistance and the all-time high north of 2,940 held by a point with a close above 2,950 signaling additional momentum towards 2,975-3,000.

The Dow gained 0.3% after closing at its session peak of 26,543.

Prior and lower resistance at 26,500-26,750 was cleared and held with a move above the latter getting 27,000 and all-time highs in play.

The Nasdaq was also up 0.3% after going out on its closing high of 8,146.

Lower resistance at 8,150-8,200 held with momentum towards 8,250-8,400 and lifetime highs on closes above these levels.

For the week, the Nasdaq zoomed 1.9%, its 5th-straight weekly rise, and the Russell 2000 rose 1.7%. The S&P 500 jumped 1.2% while the Dow was down 16 points, or less than 0.1%.

Healthcare rose 1% to lead sector strength while Financials and Consumer Staples were up 0.9%.

Energy and Technology were the only sector laggards after falling 1.3% and 0.4%, respectively.

The best performing sectors for the week included Communication Services (2.5%), Health Care (3.6%), and Technology (1.3%). Materials (-2.1%) and Energy (-1.4%) were the worst performing sectors along with the Industrials (-1%).

Earnings

The market has reached the halfway point of the Q1 earnings season with results from 230 S&P 500 members, or 46%, of the index’s total membership having reported.

Out of these companies, 79.1% have beaten EPS estimates and 58.7% have topped revenue forecasts.

Moreover, the proportion of positive EPS beats in Q1 at this stage is the second highest for this group in the last 5 years. So far, it has been easy to see estimates for the period had likely been on the lower side.

For the 230 S&P 500 members that reported, total earnings growth is barely in positive territory, however, at 0.5% on 3.7% higher revenues. Total earnings and revenues were up 17% and 7% for the same group in the preceding quarter, respectively.

Driving the expected Q1 earnings decline is broad-based margin pressures across all major sectors, with net margins for the index sliding to 11.3%, down from 12% in the year-earlier and 11.8% in the preceding quarter.

Q1 earnings growth is expected to be negative for a number of sectors with double-digit earnings declines for the Energy and Materials sectors.
For the Technology sector, Q1 earnings are expected to be down 9.3% from the same period last year on 3% higher revenues.

Looking at Q1 as a whole, combining the actual results that have come out from the 230 S&P 500 members with estimates for the still-to-come companies, total earnings are expected to be down -1.6% from the same period last year on 4.5% higher revenues.

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

Global Economy – European markets closed the week mostly higher as French consumer confidence held steady.

The Belgium20 rose 0.4% and Germany’s DAX 30 added 0.3%. France’s CAC 40 and the Stoxx 600 Europe climbed 0.2%. UK’s FTSE 100 slipped 0.1%.

France’s INSEE reported its Consumer Confidence index for April remained unchanged at 96 from March.

Asian markets closed mixed with Chinese stocks logging the worst weekly return since last year.

China’s Shanghai dropped 1.2% and South Korea’s Kospi fell 0.5%. Japan’s Nikkei dipped 0.2%. Meanwhile, Hong Kong’s Hang Seng advanced 0.2% and Australia’s S&P/ASX 200 edged up 0.1%.

GDP growth surged to a 3.2% pace in Q1, much better than expectations for a print of 2%, and compares to the 2.2% pace from Q4.

Personal consumption expenditures slowed to a 1.2% pace last quarter versus 2.5% previously, with spending on goods falling 0.7% and services up 2.0%. Fixed investment was up 1.5%, about half of the prior 3.1%.

Government spending increased 2.4% versus -0.4%. Inventories added $31.6 billion versus the $7 billion previously. Net exports made a $56.4 billion positive contribution versus -$6 billion previously.

The GDP chain price index slipped to 0.9%, about half the prior 1.7% clip with the core PCE rate at 1.3% from 1.8%.

Consumer Sentiment improved to 97.2 in April reading, versus the 96.8 preliminary, and topping estimates for a print of 97.1.

The current conditions index fell to 112.3 from March’s 113.3 while the expectations component was at 87.4 versus 88.8.

The median 12-month inflation gauge was steady at 2.5% while the 5-year price gauge came in at 2.3%, versus 2.5% in March.

Baker-Hughes reported the U.S. rig count was down 21 rigs to 991, with oil rigs declining 20 to 805, gas rigs down 1 to 186, and miscellaneous rigs unchanged at 0.

The U.S. Rig Count is down 30 rigs from last year’s count of 1,021, with oil rigs lower by 20, gas rigs down 9, and miscellaneous rigs down 1. The U.S. Offshore Rig Count is down 2 rigs to 21 and up 3 rigs year-over-year.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions following the intraday run to $124.02. Fresh and lower resistance at $124-$124.50 was cleared but failed to hold.

A close above $125 would signal continued momentum.

Rising support is at $123.50-$123.

A close below $122.50 and the 50-day moving average would signal a false breakout with additional weakness towards $122 and April lows.

RSI is back in a slight uptrend with resistance at 60 and the monthly peak.

A move above this level would signal additional strength towards 65-70 with a shot at 75 and March highs. Support is at 50-45.

Market Analysis – The S&P 400 Mid Cap Index ($MID) closed in the green for the 3rd time in 4 sessions following Friday’s run to 1,975. This level served as prior support in mid-August and early October 2018.

Continued closes above 1,975 keeps 2,000-2,025 in play. The 2019 peak from last week reached 1,984 and the all-time high is at 2,053.

Current support is at 1950-1,940 with a move below 1,925 and the 50-day moving average signaling additional weakness towards 1,900 and the 200-day moving average.

The 50-day moving average cleared the 200-day earlier this month to form a golden cross and is typically a bullish signal for higher highs.

RSI is in an uptrend with resistance in the 65 area and the monthly peak. A move above this level would signal additional strength towards 70-75 and February highs.

Support is at 55 and level that has been holding throughout April. A close below 55 would signal a possible near-term top and additional weakness towards 50-45.

iShares MSCI Emerging Markets (EEM) snapped a 2-session slide after reaching an intraday peak to $43.96. Near-term and lower resistance at $44-$44.25 held.

A close above $44.50 would signaling additional strength for a possible push towards $44.75-$45 and fresh 2019 highs.

Current support is at $43.50-$43.25 and the 50-day moving average. A close below $43 would be a slightly bearish development with risk towards $42.50-$42.

RSI has been flatlining while holding upper support at 45-40 and the latter representing the early March and 2019 low. Resistance is at 55-60.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 76.69% with the opening low tapping 75.72%.

Near-term support at 75%-72.50% held with a move below the latter being a slightly bearish development for additional weakness towards the 70% level.
January 2018 resistance remains at 77.5%-80% with last week’s peak reaching 79.61%.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 71.08% and the session high. Near-term and lower resistance at 72.5%-75% held with a move above the latter signaling additional strength towards 80%-82.5% and the monthly highs.

Current support is at 70%-67.5%.

A move below the 65% level and the monthly low of 66.53% would be slightly bearish signals for additional weakness towards 62.5%-60% and late March lows.

All the best
Roger Scott.