U.S. markets traded in a tight range on Friday while showing strength as chatter toward a trade deal with China continued to improve. President Trump fueled optimism after saying he is open to considering an interim deal, though it would not be preferred.

Meanwhile, China added soybeans and pork to the list of tariff exemptions.

Despite the mixed session, the major indexes managed a 3rd-straight week of gains and have completely recovered their August losses.

The July all-time highs remain in play with next week’s update from the Fed likely playing a key role in helping, or hurting, the current momentum.

The Russell 2000 traded in a 12-point range while gaining 0.2% and tapping an intraday high of 1,589.

Prior and upper resistance at 1,585-1,600 was breached but held with the July peak at 1,599.

The Dow edged up 0.1% to extend its winning streak to 8-straight following the morning push to 27,277.

Major and lower resistance at 27,250-27,500 was challenged but held for the 2nd-straight session with a close above the former and July all-time high at 27,398 being an ongoing bullish signal.

The S&P 500 had its 3-session winning streak snapped after slipping 0.1% and stalling at 3,017. Major resistance at 3,025 held before the fade to 3,002 with the index holding the 3,000 level fo the 3rd-straight session.

The Nasdaq was down 0.2% after trading in a 45-point range while testing an intraday low of 8,165.

Near-term and upper support at 8,150-8,100 held with a move below the latter being a slightly bearish signal for a retest towards 8,050-8,000 and the 50-day moving average.

For the week, the Russell 2000 zoomed 5.1% and the Nasdaq added 0.9%. The Dow jumped 1.6% and S&P 500 was higher by 1%.

Materials led sector strength for the 2nd-straight session after soaring another 1.1% while Energy and Financials rallied 0.8%.

Real Estate paced sector laggards after giving back 1.2% while Technology skidded 0.7%.

The best performing sectors for the week were Financials (3.8%) followed by Energy (3.5%) and Materials (3.3%).

Sector laggards included Real Estate (-3%), Consumer Staples (-0.7%) and Technology (-0.4%).

The “official” start of 3Q earnings is nearly a month away but a few companies have started reported results. While Q3 earnings growth is expected to be negative, current estimates indicate a modestly positive growth rate in the December quarter.

However, growth could turn negative in the coming weeks as estimates for the Q4 period come down as companies report Q3 results.

The overall tone and substance of corporate guidance during the last earnings season was on the negative side.

This reflected a combination of slowing economic growth, here at home and abroad, and rising input expenses.

As a result, analysts steadily lowered their estimates for the upcoming 3Q.

For the September quarter, the expectation is that earnings for the S&P 500 index will decline by -4.8% from the same period last year on 4.2% higher revenues, with the majority of sectors expecting to have lower earnings compared to the year-earlier period.

Energy, Basic Materials, and Technology are expected to experience double-digit declines while the Finance sector is projected for modestly positive growth in Q3.

Global Economy – European markets showed continued strength following better-than-expected economic news and sustained sentiment over the ECB’s new quantitative easing program.

The Belgium20 rallied 0.9% and Germany’s DAX 30 added 0.5%. The Stoxx 600 and UK’s FTSE 100 added 0.3% while France’s CAC 40 climbed 0.2%.

The eurozone’s trade surplus in goods with the U.S. hit a record high in July as exports to the U.S. rose to 32.8 billion euros, while imports came in at 18 billion euros.

Asian markets showed strength after President told reporters he would like to ink a full trade agreement with China, but was open to striking a limited deal, depending on the proposals.

Japan’s Nikkei jumped 1.1% and Hong Kong’s Hang Seng was higher by 1%. South Korea’s Kospi and China’s Shanghai rose 0.8% while Australia’s S&P/ASX 200 edged up 0.2%.

Retail Sales for August rose 0.4%, and was unchanged excluding autos. Expectations were for a rise of 0.3% in the headline number and represented the 6th-straight monthly increase, with Retail Sales now up 4.2% year-over-year.

Sales excluding autos, gas, and building materials were flat versus 0.9% previously. Auto sales climbed 1.8% after rising 0.1% while gas station sales declined -0.9% from 1.4%.

Non-store retailers increased another 1.6% from 1.7% previously. Building materials rose 1.4% after the prior 1% rise. Food and beverage sales slipped -0.2%, with general merchandise falling -0.3%.

Import Prices fell -0.5% in August, with Export Prices slipping -0.6%, versus expectations of -0.5% for both. On a 12-month basis, import prices fell to -2% year-over-year from -1.9%, with export prices sliding to -1.4% from -0.9%.

For import prices, petroleum prices dropped -4.8% after the 0.9% July rebound.

Excluding petroleum, import prices were flat for a second straight month. Industrial supplies prices tumbled -2.1% from the prior 0.4% gain. Import prices with China dipped -0.1% from -0.2% previously, and declined -1.4% with Canada versus the prior -0.4%.

As for export prices, agricultural prices dropped -2.5% from a 0.2% gain previously. Excluding ag, export prices were down -0.4% from 0.2%.

Consumer Sentiment rebounded 2.2 points to 92 in September, topping forecasts for a print of 91, and follows the 8.6 drop to 89.8 in August.

The current conditions index increased to 106.9 from 105.3 and the expectations component rose to 82.4 from 79.9.

The 12-month inflation gauge increased to a 2.8% pace versus 2.7% while the 5-year index slowed to 2.3% versus 2.6%.

Business Inventories for July increased 0.4%, with sales rising 0.3%, matching forecasts. The inventory-shipment ratio was unchanged at 1.40.

Baker-Hughes reported the U.S. rig count was down 12 rigs to 886, with oil rigs declining 5 to 733, gas rigs falling 7 to 153, and miscellaneous rigs unchanged at 0.

The U.S. Rig Count is down 169 rigs from last year’s count of 1,055, with oil rigs down 134, gas rigs off 33, and miscellaneous rigs down 2 to 0. The U.S. Offshore Rig Count is down 2 to 26 and up 6 rigs year-over-year.

Market Sentiment – As far as the Fed’s policy outlook, the market is expecting a 25 basis point rate cut following Wednesday’s FOMC meeting.

Forecast revisions to be released along with the FOMC statement will likely show further downward revisions in the dot-plot projections despite big boosts for the 2019 GDP estimates, as seen in June.

The 2019 central tendency for GDP growth should be raised to 2.3%-2.4% from 2%-2.2%, with some estimates at 2.5%.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 5th-straight session and 6 of the past 7 following the late day plunge and close at $136.54. Fresh and upper support at $136.50-$136 held.

A close below the latter opens up risk towards $134-$133.50 and prior breakout levels from early August.

Lowered resistance is at $137-$137.50 followed by $138-$138.50 and the 50-day moving average.

RSI remains in a downtrend with support at 30 but is signaling very oversold levels.

However, there is risk to 25-20 and October 2018 lows on a move below 30. Resistance is at 35-40.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 8th-straight session and 11 of the past 12 after trading to a high of $273.28.

Near-term and lower resistance at $273-$273.50 was cleared but failed to hold for the 2nd-straight session. A move above the latter and the mid-July all-time high at $273.99 would be an ongoing bullish signal for a run towards $275-$277.50, depending on momentum.

Current support is at $272.50-$272.

A close below the $271.50 level would be a slightly bearish signal with back-and-fill candlestick risk towards $270-$269.50.

RSI remains in a slight uptrend with resistance at 65-70. A close above the latter would signal additional strength towards 75-80 and July highs but overbought territory.

Support is at 60 with downside potential towards 55-50 on a move below this level.

The Spider S&P Retail ETF (XRT) closed higher for the 4th time in 5 sessions after testing an intraday high of $44.28. Lower resistance from early May at $44-$44.50 was cleared but held for the 3rd-straight session.

A close above the latter would be an ongoing bullish development with upside potential towards $45-$45.50 and late April hurdles.

Current support is at $43.50-$43.

A close below the latter and the 200-day moving average would be a slightly bearish development with additional risk towards $42.50-$42 and late July support levels.

RSI is in a slight downtrend with support at 65-60. A close above below the latter would signal additional weakness towards 55-50 and support levels from earlier this month.

Resistance is at 70 with a move above this level getting 75-80 and June 2018 highs in play but also signaling overbought levels.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 65.04% on Friday, up 0.97%, with the session high reaching 67.96% for the 2nd-straight session.

Near-term and lower resistance at 65%-67.5% was cleared and held. A close above the latter would be an ongoing bullish signal for strength towards 70%-72.5%. Current support is at 62.5%-60%.

A close below the latter would be a slight bearish signal with weakness towards 57.5%-55%.

The percentage of S&P 500 stocks trading above the 200-day moving average closed at 75.04%, up 1.78%, with the session peak reaching 75.44%.

Lower resistance from late July at 75%-77.5% was cleared and held but is signaling slightly overbought levels. However, a close above the latter would signal additional strength towards 80%-82.5% and late January 2018 highs.

Support is at 72.5%-70%.

A move below the latter would signal additional weakness towards 67.5%-65% and prior levels from the start of last week.

All the best,
Roger Scott.