U.S. markets settled mostly higher on Friday with Tech showing slight weakness while the small-caps showed the most strength.
The choppiness midday came following a report that President Trump still wants to implement $200 billion in tariffs on Chinese imports despite the potential for the nations to begin negotiations again.
Volatility settled at its lowest level since late August as the major indexes closed higher for the week.
The current momentum could continue into month’s end and ahead of 3Q earnings season if the VIX can clear and hold the 11.50 level this week.
The Russell 2000 rose 0.4% after holding positive territory for much of the session while peaking at 1,726 intraday.
Resistance at 1,725-1,730 held with a close above the latter getting fresh all-time highs north of 1,742 in play.
The Nasdaq slipped 0.1% despite testing a first half high of 8,040.
The index held fresh support and the 8,000 level following the fade to 7,979 during the afternoon action.
The Nasdaq posted a gain of 1.4% for the week, its third positive week in the past four, while the Russell 2000 rose 0.5%.
The Dow extended its win streak to 4-straight after adding 8 points, or 0.03%, and trading to an intraday high of 26,211.
Lower resistance at 26,200-26,400 held into the closing bell with a move above the latter being a more bullish development.
The S&P 500 was up less than a point, or 0.03%, after trading in a 13-point range while topping out at 2,908.
Fresh resistance at 2,925-2,950 remains in play on a move above the late August and all-time high of 2,916.
For the week, the S&P 500 soared 1.2%, its ninth positive week of the past 11. The Dow rose 0.9%, its fourth positive week in the past five.
Financials led sector strength after rising 0.7%.
Industrials and Energy were the only other sectors that finished in the green. Real Estate was the weakest sector after giving back 0.9% while Utilities dropped 0.5%.
Energy zoomed 2% while Industrials and Technology surged 1.9% for the week. Financials fell 0.4% and were the only sector to close with a weekly loss.
Global Economy – European markets were higher on chatter the U.K. and EU are closing in on a separation pact, according to Brexit minister Dominic Raab.
The comments come ahead of a meeting of European leaders next week. The U.K. is due to leave the EU next March.
Germany’s DAX 30 rallied 0.6% while France’s CAC 40 and the Belgium20 gained 0.5%.
The Stoxx 600 Europe was up 0.4% and UK’s FTSE 100 was higher by 0.3%.
Eurozone Q2 labor costs rose 2.2% year-over-year, the fastest pace of increase in over 5 years.
Asian markets closed mostly higher with China’s Shanghai dipping 0.2% despite better-than-expected economic news.
South Korea’s Kospi surged 1.4% and Japan’s Nikkei jumped 1.2%.
Hong Kong’s Hang Seng rallied 1% and Australia’s S&P/ASX 200 advanced 0.6%.
China August industrial production rose 6.1% year-over-year, matching expectations.
China August retail sales were up 9%, topping forecasts of 8.8%.
August Retail Sales rose 0.1%, and were up 0.3% excluding autos. Both of those fell shy of forecasts for gains of 0.4% and 0.5%, respectively.
Import prices fell 0.6% in August, with export prices down 0.1%. Expectations were for a 0.3% decline with import prices expecting to fall 0.2%.
Industrial production increased 0.4% in August, matching forecasts, with capacity use at 78.1%.
The preliminary University of Michigan Consumer Sentiment reading for September jumped 4.6 points to 100.8, which was much better than the 96.6 reading that was forecast.
July Business Inventories were up 0.6%, topping estimates of 0.5%, with shipments rising 0.2%.
Atlanta Fed’s Q3 GDPNow estimate was boosted back to 4.4% from 3.8% previously.
This is still much higher than the NY Fed Nowcast model at 2.24% that was adjusted up from 2.23%, and the Blue Chip estimate at 3.1%.
Baker-Hughes Baker reported that the U.S. rig count was up 7 rigs from last week to 1,055, with oil rigs up 7 to 867, gas rigs unchanged at 186, and miscellaneous rigs unchanged at 2.
The U.S. Rig Count is up 119 rigs from last year’s count of 936, with oil rigs up 118, gas rigs unchanged at 186, and miscellaneous rigs up 1.
The U.S. Offshore Rig Count is up 1 rig to 20 and up 3 rigs year-over-year.
Market Sentiment – Chicago Fed Charles Evans said the economy is firing on all cylinders and a 3%-3.5% Fed funds rate projected for 2019-2020 is mildly restrictive.
He expects inflation to edge up a bit above the 2% target and forecasts GDP growth near 3% this year, with some slowing in 2019-2020. He believes unemployment may dip to 3.5% by the end of 2020.
Former Fed Chair Janet Yellen said a few years of inflation overshoot would not be a tragedy, though low unemployment means the economy could overheat, but unlikely to do so rapidly.
Otherwise, she said the Fed faces quite a challenging period in trying to extend the economic recovery while also moving rates higher.
She also warned that the U.S. pulling away from its global role could exacerbate stress in emerging markets.
The iShares 20+ Year Treasury Bond ETF (TLT) closed lower for the first time in 3 sessions after bottoming at $118.30.
Fresh support at $118.25-$117.75 held. A close below the latter and the early August would be a continued bearish development. Lowered resistance at $119-$119.50.
The 50-day moving average continued to shows signs of rolling over and is on track to fall below the 200-day moving average over the near-term.
This would form a death-cross and is typically a bearish development for lower lows.
RSI is in a downtrend with support at 35 and July lows.
A close below this level would be a bearish signal with risk towards 30 and late April levels. Resistance is at 40-45.
Market Analysis – The Russell 3000 Index ($RUA) was up for the 5th-straight session after trading to an intraday high of 1,728. A v-shape recovery appears to be in process with lower resistance at 1,730-1,735 holding.
A close above the latter could lead to a run towards 1,750. The recent and late August all-time high tapped 1,733.
Near-term support is at 1,720-1,715.
A move below 1,710 would signal additional weakness with risk towards 1,700-1,690 and the 50-day moving average.
RSI has been in a uptrend with resistance at 65-70.
A close above the latter and the late August peak would be a continued bullish development.
Support is at 60 with risk to 55-50 on a move back below this level.
The Spider Gold Shares (GLD) have been in a mini trading range between $113-$115 with stretch to the downside over the past 3 weeks. The recent bottom reached the $111 level in mid-August.
Near-term and upper support at $113-$112.50 held on Friday’s pullback to $112.91.
A move below the latter would get fresh 52-week lows back in play.
Near-term resistance is at $113.50-$114 with additional hurdles at $114.50-$115 and the 50-day moving average. Continued closes above the latter would be a more bullish signal a possible bottom is in.
RSI is back in a downtrend with support at 40-35 and the latter representing the late August low. Resistance is at 50.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 68.45% with the peak reaching 69.24%.
Resistance at 70%-72% held with a move above the latter signaling continued momentum.
Support is at 65%-64% with risk to the 61%-59% area and mid-August lows on a move below the latter.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 58.25% with the session high reaching 59.22%.
Resistance at 59%-60% held. These levels held and served as prior major support in mid-August and earlier this month. The back-to-back higher highs to end last week ended a late August streak of weakness and continued lower lows.
Continued momentum would occur on a move above 62%-63%. The midweek low reached 55.33%.
A close below the 55% level would be a bearish signal with additional weakness towards the 50-49% area and late June lows.
All the best,
Roger Scott