Market Review To Kick-Off 2018 Right

Market Action

U.S. markets closed 2017 on a low note as selling pressure erased weekly gains while snapping 5-week win streaks for the Dow and S&P 500. Both indexes fell 0.5% on Friday while giving back 0.1% and 0.4%, respectively, for the week. The Dow gained 1.8% in December and the S&P 500 rose 1%.

The Russell sank 0.9% to lead Friday’s pullback while the Nasdaq tanked 0.7%. Both indexes also ended the week lower by 0.4% and 0.8%, respectively. For the month, the Nasdaq was up 0.4% while the Russell 2000 fell 0.6%.

For the year, the Nasdaq surged 28% while the Dow jumped 25%. The S&P gained just over 19%, and the Russell 2000 rose 13%. It was the best year for the market since 2013, with the Nasdaq rising for its sixth-straight year, its longest such streak since 1975 to 1980.

Real Estate was the only sector that closed higher Friday after adding 0.1%. The Financial sector led the laggards after giving back 0.7% while Consumer Discretionary and Health Care were down 0.6%.

Energy led the monthly winners after advancing 7% while Utilities faltered 6.6%. Technology was the sector standout for 2017 after zooming 31.2%. Industrials rose 21.2% and Materials rallied 21%. Financials and Consumer Discretionary soared 20.3% and 20.2% to round out the top five sectors.

Earnings Outlook

Fourth-quarter earnings season starts the week after next, or January 8th, and will likely influence market direction for the month. There hasn’t been any major earnings warnings from companies that could miss expectations but there could be over the next few weeks.

The earnings forecasts from the tax legislation should become a little clearer now that it is signed into law, and preliminary estimates suggest a material impact. We will have a 4Q outlook ahead of the event but stocks could make dramatic moves based on company results and their outlooks for 2018.

Global Economy

European markets were mostly lower with UK’s FTSE 100 bucking the trend after jumping 0.9% to close at another record high while ending the year 7.6% higher

Germany’s DAX 30 lost 0.5%, trimming its yearly gain to 12.5% while France’s CAC 40 declined 0.5%, to lower its 2017 return to 9.3%.

The Stoxx Europe 600 slipped 0.4% while advancing a 7.7% for the year and the Belgium20 fell 0.3% to lower its 2017 gain to 10.3%.

Asian markets were mixed with South Korea’s Kospi closed for a holiday while finishing the year 21.6% higher.

Japan’s Nikkei slipped 0.1% but ended 2017 with a 19% advance and Australia’s S&P/ASX 200 slid 0.4% to end the year with a gain of 11.7%

Hong Kong’s Hang Seng climbed 0.2% and was up an astounding 36% this year. China’s Shanghai rose 0.4% and added 6.6% in 2017.

U.S. Economy

Baker-Hughes Rig Count was down 2 rigs from last week to 929, with oil rigs unchanged at 747, gas rigs down 2 to 182, and miscellaneous rigs unchanged. Over the year, total rigs have climbed by 271.

Market Sentiment

The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the fifth time in six sessions and second-straight after making a run to $127.12 intraday. Upper resistance at $126.75-$127 held with continued closes above this level being a bullish development. Support is trying to move up to $126.50-$126.25 with risk to $125.50-$125.25 and the 50-day moving average on a close below the latter. RSI is flattening out with resistance at 60. A move above this level would be a bullish signal. Support is at 50 with a move below this level signaling additional weakness.

Inverse Volatility

The VelocityShares Daily Inverse VIX (ZIV) traded to an all-time high of 89.24 with lower resistance at 89.50-90 holding. The pullback to 88.36 intraday held support at 88-87.50. A move below 86 would be a slightly bearish signal for upcoming market weakness. RSI is testing early August resistance at 80 with continued closes above this level being slightly bullish but still suggesting overbought territory.

Market Analysis

The Spider S&P 500 ETF (SPY) fell a nickel shy of its all-time high after tapping $268.55 on Friday. Lower resistance at $268.50-$269 held before the pullback to $266.64. Near-term support at $266.50-$266 held with a close below $265 likely signaling additional weakness to $264-$262.

RSI has been struggling holding support at 70 after failing late November and resistance at 75 mid-month. We mentioned a move back below 70 would be a slightly bearish development with continued risk to 60-50.

Sector

The Spider Gold Shares (GLD) is pushing 3-month highs after peaking at $124.08 on Friday. A double-top breakout could be in progress with fresh resistance at $124.50-$125 on continued closes above $124. Rising support is at $123.50-$123.

The 50-day moving average has leveled out and avoided falling below the 200-day moving average that would have formed a death cross. RSI has been in a solid uptrend but is facing early September resistance at 70-75.

The percentage of S&P 500 stocks trading above the 50-day moving is currently at 79.8% after peaking at 81.2% for three-straight sessions to end the week. The early December and one-year intraday high reached 83.3% with longer-term resistance at 85%-87%. Support is at 75% with risk to 72.5%-70% on a close below the latter.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 71.7% after failing resistance at 76.5% last week. A close above the later could lead to a test to July resistance at 77.5%-80%. Support from early December is at 70%-69% with risk towards the 67.5% level on a move below the latter.