U.S. markets opened in negative territory on Friday, taking their lead from overseas markets, which fell on concerns surrounding Turkey’s economic crisis. U.S. banks may have little exposure to the Turkish lira, but European banks do and worries about a ripple effect hurt the financial sectors around the globe.
Near-term support levels held for the major indexes with the small-caps being the most fragile at the present moment. Volatility also held a key level of support after spiking nearly 17%.
The Dow dropped 0.8% to extend its losing streak to 3-straight sessions after testing a low of 25,222. Fresh support at 25,200-25,000 held with a move below the latter being a continued bearish development.
The S&P 500 stumbled 0.7% while trading to an intraday low of 2,825. Backup support at 2,825-2,820 held with a close below the latter getting 2,800 back in play.
The Dow fell for the first time in 6 weeks after giving back 0.6% while the S&P 500 fell 0.3%.
The Nasdaq had its 8-straight winning streak snapped following a 0.7% pullback and backtest to 7,818.
Support at 7,800 held with a move below this level likely signaling additional weakness.
The Russell 2000 fell 0.4% despite showing intraday strength after trading down to 1,680 shortly after the open.
Upper support at 1,680-1,675 and the 50-day moving average held with a close below the latter being a warning sign for lower lows.
For the week, Tech was up 0.4% while the small-caps rose 0.8%.
Energy was the only sector to show strength after rising 0.5%. Consumer Discretionary and Communication Services gained 0.8% and 0.7% for the week.
Materials and Financials paced sector laggards after falling 1.4% and 1.2%. For the week, Consumer Staples and Real Estate were down 1.9% and 1.8%, respectively.
Global Economy – European markets were weak on concerns Turkey’s economic problems will spill over into the Eurozone.
Germany’s DAX 30 plummeted 2% and the Belgium20 sank 1.8%. France’s CAC 40 tanked 1.6% and the Stoxx 600 Europe fell 1.1%.
UK’s FTSE 100 declined 1%.
UK Q2 GDP rose 0.4% and 1.3% year-over-year, matching expectations.
UK June industrial production was up 0.4% and 1.1% year-over-year, topping forecasts of 0.3% and 0.7%, respectively.
UK June manufacturing production climbed 0.4% and 1.5% year-over-year, ahead of forecasts of 0.3% and 1%, respectively.
Asian markets finished mostly lower with China’s Shanghai bucking the trend after rising a point, or 0.04%.
China’s PBOC said it won’t use the yuan to offset trade restrictions, and won’t provide any strong economic stimulus measures, in its quarterly monetary policy report, adding it will maintain its prudent, neutral monetary policy stance.
Japan’s Nikkei was lower by 1.3% and Hong Kong’s Hang Seng fell 0.8%.
Australia’s S&P/ASX 200 slipped 0.3% and South Korea’s Kospi gave back 0.9%.
Japan Q2 GDP rose 1.9%, stronger than expectations of 1.4%. Q2 private consumption rose 0.7%, topping forecasts of 0.2%. Q2 business spending was up 1.3%, stronger than expectations of 0.6%.
The Q2 GDP deflator climbed 0.1% year-over-year, ahead of forecasts for a flat reading.
Japan July PPI rose 0.5% and 3.1% year-over-year, stronger than estimates for a gains of 0.2% and 2.9%, respectively.
Consumer Price Index rose 0.2% in July, with the core rate also up 0.2%, matching expectations. The 12-month pace was flat at 2.9% but the ex-food and energy component accelerated to 2.4% versus 2.3% year-over-year, previously.
Energy costs contracted further at -0.5% following June’s -0.3% print. Services prices rose 0.3% versus 0.1%.
Housing prices increased 0.2% from unchanged, with the owners’ equivalent rent measure rising 0.3%, and the same as June.
Food/beverage prices edged up 0.1% from 0.2%. Transportation costs increased 0.3% from 0.4%. Apparel prices declined 0.3% after tumbling 0.9% previously.
Medical care fell 0.2% from 0.4%. Educational costs were up 0.2% from 0.2%, with personal computer prices plunging 2.0% following the prior -0.7%.
Recreational costs rose 0.2%, the same as June. Commodities were unchanged from 0.1%. Tobacco prices bounced 0.1% from -0.4%. Real average weekly earnings contracted at a -0.2% year-over-year rate from unchanged.
Baker-Hughes reported that the U.S. rig count was up 13 rigs from last week to 1,057, with oil rigs up 10 to 869, gas rigs up 3 to 186, and miscellaneous rigs unchanged at 2.
The U.S. Rig Count is up 108 rigs from last year’s count of 949, with oil rigs up 101, gas rigs up 5, and miscellaneous rigs up 2. The U.S. Offshore Rig Count is up 3 rigs to 20 and up 2 rigs year-over-year.
The Philly Fed’s Survey of Professional Forecasters predicts real Q3 GDP will post an annual growth rate of 3%, and slowing slightly to a 2.8% clip in Q4, which are unchanged from the survey three months ago.
Annual growth rates are seen at 2.8% in 2018 and 2019, and slipping to 1.8% in 2020 and 1.5% in 2021.
The unemployment rate is expected to improve slightly, averaging 3.9% this year, 3.6% in 2019, and 3.7% in 2020, then jumping back to 4% in 2021.
CPI inflation is expected to average 2.4% this year, down from the 2.5% from the prior survey, with core CPI projected at 2.3% for 2018, down 0.2% from the estimate three months ago.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after surging to a high of $121.05.
Fresh and upper resistance at $120.75-$121 held on the close back above the 50/200-day moving averages. A close above $121.25 would be a bullish development for a run at July highs north of $122.
Rising support is at $120.25-$120 with a close below the latter signaling a possible short-term top.
RSI is in a nice uptrend with resistance at 60. A move above this level could signal additional strength towards 70 and May and July highs. Support is at 50.
Market Analysis – The Russell 3000 Index ($RUA) traded in negative territory throughout Friday’s action with the low tapping 1,680.
Upper support at 1,680-1,675 held with a move below 1,670 being a bearish development and signaling a possible near-term top.
Resistance is at 1,690-1,695 with a close above the latter keeping fresh all-time highs north of 1,700 in play.
RSI is back in a downtrend with support at 55-50.
A move below the latter and July low would be a warning signal for additional weakness. Resistance is at 60.
The Technology Select Sector Spiders (XLK) traded in negative territory throughout the session with the low tapping $72.82.
Fresh support at $72.75-$72.50 held with a close below the latter likely leading to a continued backtest towards $72-$71.75 and the 50-day moving average.
Resistance is at $73.25-$73.50. Continued closes above the latter could lead to a push towards $74-$74.50 and prior all-time highs.
RSI is weakening with support at 55-50.
A move below the latter would signal additional weakness towards 45-40 and late July lows. Resistance is at 60.
The percentage of S&P 500 stocks trading above the 50-day moving average closed at 61.18%.
Support at 60% held on a dime and the session low with risk to 55% and the early August low on a move below this level.
Resistance is at 62.5%-63%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 64.07% and the session low.
Support at 63%-62.5% held with a move below the latter signaling additional weakness. The late July low reached 63.10%.
Resistance is at 66%-66.50% with a close above the latter being a slightly bullish development for another test towards the 70% level.
All the best,
Roger Scott.