Sunday, September 24, 2017

Weekly Stock Market Outlook 9/25/2017

U.S. markets rebounded off their lows on Friday to finish mostly higher aside from the Dow which traded lower for the second-straight session. The blue-chips and the S&P 500 ended the week with slight gains while the Nasdaq gave back 0.3%.  The Russell 2000 quietly made a run at its all-time high of 1,452 from July and fell shy by just over a half-point after gaining 0.5%. For the week, the small-caps were up 1.3%.  Sector action for the week was mixed with Energy, Industrials and Consumer Discretionary leading on the upside. Losing sectors included Utilities, Real Estate, Basic Materials and Consumer Staples.  The rotation out of safety, such as the Utilities (and gold), and into the small-caps could continue if market momentum stays strong.

Global Economy - European markets gained on signs the European economy continues to expand at a better-than-expected pace. UK's FTSE 100 jumped 0.7% while France's CAC 40 advanced 0.3%. The Stoxx Europe 600 gained 0.1%. Belgium20 fell 0.3% and Germany's DAX 30 slid 0.1%.

The Purchasing Managers Index (PMI) for the eurozone hit 56.7, topping expectations for a drop to 55.6. The manufacturing component rose to 58.2 and the services component checked-in at 55.6, both also topping expectations.  Germany's September Markit/BME manufacturing PMI unexpectedly rose 1.3 to 60.6, stronger than expectations of a -0.3 dip to 59.

German voters go to the polls this Sunday where Chancellor Merkel is expected to secure a fourth term, although she may not win an outright majority.

Asian markets were down, with stocks in Japan reversing early gains following fresh threats from North Korea, while China's markets declined on a credit-rating downgrade. Hong Kong's Hang Seng Index sank 0.9% and South Korea's Kospi tumbled 0.7%. Japan's Nikkei declined 0.3% and China's Shanghai index slipped 0.2%.

Bucking the trend was Australia's S&P/ASX 200 after climbing 0.9%.

Standard & Poor downgraded China's sovereign credit rating due to risks associated with its increasing debt. The downgrade had been widely anticipated, and brings its rating in line with Moody's, which downgraded China in May, and Fitch, which made its cut back in 2013.

The U.S. Markit's flash manufacturing PMI for September edged up 0.2 points to 53, matching expectations. The services PMI fell to 55.1 and below the 55.8 that was forecast.  September Atlanta Fed Business Inflation Expectations were up 1.9% for the year.

Market Sentiment- Fedspeak returned on Friday following from the blackout period ahead of last Wednesday's FOMC minutes.

San Francisco's Fed John Williams talked about balance sheet normalization, targeting a 2.5% Fed funds rate as the new normal with one more hike this year and three more next year. Williams said the Fed was very close to its mandate targets and that the economy is in very strong shape with the markets understanding what the Fed is trying to do.

Kansas City Fed Esther George said the full employment mandate appears to have been met going by the most recent Fed projections, while the weak inflation reading does not appear related to the economy.  She expects job growth to weaken but to remain at levels needed to absorb new workers and to keep unemployment levels low. However, she's concerned that loose financial conditions cannot be perceived until they become a problem.  George went on to add consumers are in a good position to keep spending and said the balance sheet plan was well telegraphed to the public and markets, saying she's gratified that the announcement did not cause a strong market reaction.
As far as the economy, she said it's a good sign that the balance sheet reduction can begin, while quantitative easing (QE) is kept in a box and used for emergencies only. She views gradual interest rate moves as appropriate, but said the Fed needs to keep the momentum on rates underway.

Dallas Fed Robert Kaplan is open minded about one more hike this year in December, but he said he has not made a decision. He said structural headwinds, including technology could hold inflation down.  He also sees a shortage of construction workers around Houston though he anticipates a snap-back in growth from Harvey.

Risk from China remains a danger zone in terms of rising debt levels there. He also said the oil industry is in a fragile equilibrium at around $50 barrel.

The iShares 20+ Year Treasury Bond ETF (TLT) held positive territory throughout Friday's session while trading up to $126.73.  Resistance at $126.25-$126.50 was cleared but levels that failed to hold into the closing bell.  Support is trying to move up to $126 with $125.75-$125.50 and the 50-day moving average serving as backup.

Market Analysis- The Russell 2000 ETF (IWM) made a run to $144.67 and a fresh all-time peak with continued closes above $144 being a bullish development.  This area served as prior resistance on the July highs and will try to hold as near-term support with IWM reaching $146-$147.50 on continued momentum.  A move back below $143-$142.50 would be a slightly bearish development and would likely signal a short-term double-top.

For the week, the largest single fund inflow was to the iShares Russell 2000 which was over 20% on ETF fund inflows.

The iShares Transportation Average (IYT) has been volatile this month but is approaching fresh 52-week peaks with Friday's push to $175.20.  A move above $175.75-$176 could lead to a continued breakout towards the $180 level. Shaky support is at $174-$173.50.  A move below $173-$172.50 would be a bearish development for continued weakness and would also signal a near-term double-top.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average is currently at 56%.
Last Thursday's low reached 50% and represents the late August breakout above this level that led to a quick run to 75%.  The is risk to the 45%-40% area on continued Tech weakness and mid-August support levels. A move back above 60% could signal a return of market strength.

Courtesy of:  Market Geeks

Sunday, September 17, 2017

Weekly Stock Market Outlook 9/17/2017

U.S. markets finished the week strong with the Dow and S&P 500 hitting fresh all-time highs into the closing bell. In fact, it was the best week of the year for the blue-chips after gaining just over 2%. The Nasdaq also set an intra-day lifetime high with the Russell 2000 showing the most strength on Friday.
Most sectors finished in the green with Industrials showing the most strength. Consumer Discretionary and Health Care were the only laggards with both falling 0.3%. For the week, the best performing sectors were Energy, Health Care, and the Financials. The worst performing sectors were Consumer Cyclicals and the Utilities.

The Q3 earnings season doesn't start for a few more weeks, but the earnings season will officially be underway before that as companies with fiscal quarters ending in August start reporting results next week. Total Q3 earnings for the S&P 500 index are expected to be up 3.3% from the same period last year on 5.1% higher revenues. This would follow double-digit earnings growth in each of the preceding two quarters. The Q3 earnings growth drops to 1.5% (from 3.3%) when the strong Energy sector growth is excluded. The Construction and Conglomerates are the other sectors, in addition to Energy, with expected double-digit earnings growth in Q3. Growth is expected to be strong for the Technology sector, as well, with Tech earnings expected to be up 8.6% from the same period last year on 6.4% higher revenues.

For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.5% on 4.6% higher revenues, which would follow 0.7% earnings growth on 2.1% higher revenues in 2016. Index earnings are expected to be up 11% in 2018 and 8.9% in 2019.

Global Economy - European markets pulled back on Friday following another terrorist attack in London. The FTSE 100 sank 1.1% and the Belgium20 fell 0.6%. The Stoxx Europe 600 was down 0.3% while France's CAC 40 index and the DAX 30 gave back by 0.2%.  ECB Executive Board member Sabine Lautenschlaeger said it was time to take a decision now on scaling back Germany's bond purchases at the beginning of next year. She went on to say that there is little doubt that buoyant growth and monetary accommodation would take Germany back to an inflation rate which is in line with their goal.

Elsewhere, The Bank of England policy maker, Gertjan Vlieghe, seen as least likely to back a rise in interest rates has changed his view and now thinks a hike may be needed soon. In a speech to economists, he said the U.K. economy was running through its spare capacity quicker than he had expected, while household spending was stronger.  Based on his previous comments, Mr. Vlieghe had been regarded as the member of the nine-strong Monetary Policy Committee most inclined to oppose a rise in the key rate from a record low of 0.25%.

Eurozone wages rose at the fastest pace in more than two years during the three months to June.

Eurostat said wages were 2% higher in the three months, the fastest rise since the first quarter of 2015 and up from 1.3% in the previous three-month period.

The ECB's recently forecast that wage growth would rise to 2% next year and 2.3% in 2019 from 1.5% in 2017, although they still see inflation running below target in the final year.

Asian markets traded mixed following North Korea's firing of another missile launch over Japan, but equities there rose slightly even as the yen strengthened. Japan's Nikkei gained 0.5% while South Korea's Kospi jumped 0.4%. Hong Kong's Hang Seng Index advanced 0.1%. Australia's S&P/ASX 200 sank 0.8% and China's Shanghai index dropped 0.5%.

U.S. industrial production fell 0.9% with capacity utilization at 76.1% in August. The numbers were weaker than expected, but the Fed said Hurricane Harvey reduced IP by about 0.75%.  Retail sales fell 0.2% in August, versus expectations for a rise of 0.1%. Excluding cars, sales rose 0.2%, which was less than the 0.5% forecast.  The Empire State manufacturing survey headline reading fell slightly in September to 24.4 from a 3-year high of 25.2 in August. Expectations were for a reading of 19.  The University of Michigan consumer-sentiment index dropped to 95.3 in its preliminary September reading, down from the final August reading of 96.

Market Sentiment - Atlanta Fed's Q3 GDPNow estimate was slashed to 2.2% from 3% previously (4% initial estimate), as hurricane season begins to undo some of the promising rebound in U.S. growth.

Fed Policy Outlook: Expectations for a December Fed hike have risen and are currently near 47%. This is up from around 25% back in mid-August. Analysts continue to forecast one more 25 basis-point increase this year, which is also the Action Economic Survey median estimate.

The iShares 20+ Year Treasury Bond ETF (TLT) showed some weakness after the open with the low tapping $126.54. Support at $126.50-$126.25 held with a move below the latter leading to a further backtest to $126-$125.50 and the 50-day moving average. Short-term resistance remains at $127-$127.25.

ETF flows overall for the week were comparable to the prior week, with creations substantially outpacing redemptions at over two to one. For the top ten creations, the iShares 20+ Year Treasury Bond ETF (TLT) led the way at over 21.9% of inflows.

Market Analysis- The Russell 2000 ETF (IWM) made higher highs and high lows following last Monday's breakout above the 50-day moving average. Friday's peak reached $142.47 with near-term resistance at $142.50-$143 holding.  A move above the latter gets $144-$144.25 and the all-time high in play. Rising support is at $141.50-$141 with a move below $140 and 50-day moving average being a bearish development.

The Russell 2000 has failed to make a new life high which makes it the relative laggard for the time being. However, last week's strength looked bullish and the close above 1,430 gets the all-time high at 1,452 in play as the next major resistance hurdle.

The Energy Select Sector Spider (XLE) has been in a strong uptrend throughout September after bottoming at $61 in August.  Friday's slight gain was the 11th in the past 12 sessions with the high reaching $65.87. Prior resistance at $66-$66.25 from late July and mid-June held on back-to-back sessions to end the week.  Continued closes above $66.25-$66.50 should lead to a run towards $68-$68.50 and the 200-day moving average. Current support is at $65.50-$65 with a move below the latter signaling a further backtest towards $64-$63.75 and the 50-day moving average.  It would also represent a triple-top breakdown. Current RSI could be peaking just above 70 as this level held last December when XLE was pushing $77 and 52-week peaks.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average is currently at 61%. This level reached 69% at the beginning of the month.  A move above 70% would be bullish but a market peak could be reached when this level hits 75%.  The area held in April, May and July. A move back below 55% could signal upcoming market weakness.

The percentage of S&P 500 stocks trading above the 200-day moving average is currently at 66%. Last week's breakout above 65% was slightly bullish and a level that needs to hold to show continued market strength.  A move above 67.50% would signal a broader based rally that could led to 70% of S&P 500 stocks trading above the 200-day moving average.

Coutesy of :Roger Scott
Head Trader
Market Geeks.