U.S. markets ended the week on a sour note despite a report showing Q2 GDP grew at its best quarterly pace since mid-2014 and the third fastest quarterly rate since 2008.
The 4.1% growth rate was impressive but missed forecasts of a 4.2% clip, and below whisper rumors for a print north of 5%.
The sell-the-news event picked up downside momentum by the afternoon as the major indexes stayed underwater into the closing bell.
Prior support levels are back in play with volatility heightened after testing key resistance levels.
The Russell 2000 sank 1.9% after testing a midday low of 1,660.
The close back below the 50-day moving average was a slightly bearish development with risk to 1,640-1,630 and late June lows on continued weakness.
The Nasdaq tanked 1.5% following its backtest to 7,698 and close back below the 7,800 level.
Fresh support at 7,725-7,700 held with a close below the latter likely leading to a retest of 7,650-7,600 and the 50-day moving average.
For the week, the Russell 2000 tumbled 1.4% and the Nasdaq was down 1.1%.
The S&P 500 fell 0.7% after failing resistance at 2,850 on morning strength.
The fade to 2,808 held support at 2,800 and a level that has been holding for 9-straight sessions.
The Dow dropped 0.3% after testing a low of 25,370. The index held 25,400 and prior March and June resistance with a close below this level signaling additional weakness.
The blue-chips rose 1.6% for the week while the S&P 500 gained 0.6%.
Financials gained 0.2% and Energy added 0.1%. Industrials edged up 0.01% to round out sector strength.
Communications Services and Technology led sector laggards after sinking 1.9% and 1.7%, respectively. Real Estate was off 0.9%.
For the week, Energy rose 2.3% while Financials and Industrials advanced 2.1%.
Communications Services sank 3.9% while Technology gave back 1%.
Earnings
Q2 results from 217 S&P 500 members that combined account for 54.1% of the index’s total market capitalization. Total earnings for these 217 companies are up 21.8% from the same period last year on 8.8% higher revenues, with 81.6% beating EPS estimates and 72.8% topping revenue estimates.
The proportion of these 217 companies beating both EPS and revenue estimates is 63.1%.
Global Economy – European markets showed strength for a 2nd-straight session while posting its strongest weekly gain in more than four months.
The Belgium20 soared 1.3% and France’s CAC 40 climbed 0.6%.
UK’s FTSE 100 was up 0.5% while the Stoxx 600 Europe and Germany’s DAX 30 were up 0.4%.
Asian markets settled mostly higher to end the week. Australia’s S&P/ASX 200 jumped 0.9% and Japan’s Nikkei was higher by 0.6%.
South Korea’s Kospi gained 0.3% and Hong Kong’s Hang Seng added 0.1%. China’s Shanghai was down 0.3%.
The BOJ again defended the 0.1% upper limit of its 10-year JGB yield target by offering to buy an unlimited amount of 5-10 year bonds at 0.1%, lower than the 0.11% level purchase level from early last week. The 10-year JGB yield has risen on speculation that the BOJ at its meeting this coming Monday/Tuesday may tweak its policy in a tighter direction.
U.S. Economy
GDP was reported to have grown 4.1% in the second quarter, almost doubling the upwardly revised 2.2% rate of Q1, but below estimates of 4.2%.
The University of Michigan Consumer sentiment survey fell 0.3 points from the prior month to 97.9 in the final July reading. This was above expectations of 97.1 and the preliminary reading for July.
Baker Hughes reported that the U.S. rig count was up 2 rigs from last week to 1,048, with oil up 3 to 861, gas rigs down 1 to 186, and miscellaneous rigs unchanged at 1. The U.S. Rig Count is up 90 rigs from last year’s count of 958, with oil rigs up 95, gas rigs down 6, and miscellaneous rigs up 1. The U.S. Offshore Rig Count was down 1 rig to 16 and down 8 rigs year-over-year.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for just the 2nd-time in 6 sessions after traded to a high of $119.87.
Resistance at $119.75-$120.25 and the 50-day moving average was split with additional hurdles at $120.50-$121 and the 200-day moving average.
Support remains at $119.25-$119 with a close below the latter being a bearish development.
RSI is trying to hold support at 40 with a close below this level signaling additional weakness towards 35-30 and April/May lows.
Resistance is at 45-50.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) made a run to $255.60 during the first half of Friday’s action with lower resistance from late February at $255.50-$256 holding.
A close above the latter would be a bullish signal
The backtest to $253.48 held fresh and upper support at $254-$253.50.
A close below the latter could signal additional weakness towards $252-$250.
RSI is back in a slight downtrend with support at 65-60. A close below the latter would be a bearish development signaling additional weakness.
Resistance is at 70 and the monthly high.
The Spider Gold Shares (GLD) has been in a nasty downtrend since mid-June and is trying to form a support base at $115.50-$115.
A close below the latter would be a continued bearish development for 52-week lows. The recent 1-year low tapped $115.12 earlier this month.
Friday’s high reached $116.24 with near-term resistance is at $116-$116.50 holding.
Continued closes above $117 would be a more bullish signal a possible bottom is in.
RSI is giving a neutral reading with resistance at 35-40.
Continued closes above the latter would be a slightly bullish signal. Support is at 30-25.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 63.10% after opening at 71.84% and reaching a peak of 75.72%.
Upper resistance at 70%-75% from earlier this month held. Support is at 60% with a close below this level signaling additional weakness.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 66.99% on Friday. Resistance is at 67.50%-70%.
Continued closes above the latter would be a bullish signal for additional strength.
Support is at 65%-62.5% with a move below 60% being a slightly bearish development.
All the best,
Roger Scott