U.S. markets got off to a good start on Monday after China’s Vice Premier Liu He made some positive comments over the weekend about substantial progress made with the U.S. phase-one trade deal. President Trump also confirmed a potential trade deal with China is coming along well, after mentioning earlier this month he would like a deal signed by the middle of next month.

The overall market gains come ahead of the busiest week for the 3Q earnings season with the major indexes once again pushing near-term resistance levels. The continued strength in the Financials, and Transports, were a bullish signal as the former accounts for nearly 20% of the small-cap index.

The Russell 2000 showed the most strength after surging 1% and tapping an intraday high of 1,557. Prior and lower resistance from early September at 1,550-1,565 was cleared and held with a close above the latter being a bullish signal for a run towards 1,575-1,590.

The Nasdaq jumped 0.9% following the intraday run to 8,164. Prior and key resistance at 8,150 was cleared and held with more important hurdles at 8,200-8,250 and the mid-September high at 8,243.

The S&P 500 rose 0.7% after trading to an afternoon peak of 3,007. The close above lower resistance at the 3,000 level was a bullish signal and keeps upper resistance at 3,025 and the record peak at 3,027 in play.

The Dow added 0.2% while trading in a 105-point range and testing a session high of 26,852.

Near-term and lower resistance at 26,800-27,000 was cleared and held with a close above the latter getting 27,200-27,400 and fresh all-time highs back in focus.

Energy and Financials were the strongest sectors after soaring 1.8% and 1.4%, respectively, while Technology gained 1.1%. Materials and Healthcare were the only sector laggards after slipping 0.3% and 0.1%.

Global Economy – European markets showed strength despite another delayed parliamentary vote on Brexit. The motion for a vote was rejected by UK’s House Speaker, John Bercow, who said it was not a parliamentary convention to ask politicians to debate the same questions repeatedly.

Germany’s DAX 30 rallied 0.9% while the Belgium20 advanced 0.7%. The Stoxx 600 added 0.6% while UK’s FTSE 100 and France’s CAC 40 edged up 0.2%.

Asian markets closed higher across the board after China’s Vice Premier Liu He said China and the U.S. have made concrete progress towards a trade war deal.

Japan’s Nikkei climbed 0.3% and South Korea’s Kospi added 0.2%. China’s Shanghai nudged up 0.1% and Australia’s S&P/ASX 200 gained 3 points, or 0.04%. Hong Kong’s Hang Seng was up 6 points, or 0.02%.

There was no major economic news on Monday.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell out of a mini trading range following the intraday tumble to $138.23. Prior and upper support from mid-September at $138.50-$138 was breached but held.

A close below the latter would be an ongoing bearish signal with additional risk towards $137-$136.50 and the September low at $136.54.

Lowered resistance is at $139.50-$140.

Market Analysis – The Invesco QQQ Trust (QQQ) is mired in a 7-session trading range despite trading to an intraday high $193.52. Lower resistance at $193-$193.50 was breached but held.

Continued closes above the $194 level would be a more bullish development with upside potential towards $195.50-$196 and fresh all-time highs.

Current support is at $192-$191.50.

A move below the latter would be a slightly bearish signal for a retest towards $191-$190.50. The Friday-Monday lows from mid-month are at $190.72 and $190.65 with a close below the $190 level likely confirming risk towards $189-$188.50 and the 50-day moving average.

RSI is in a slight uptrend with resistance at 60 and the monthly peak.

A close above the latter would be a bullish signal for additional strength towards 65-70 and July highs. Support is at 55-50.

The Real Estate Select Sector Spider (XLRE) extended its winning streak to 3-straight sessions after tapping a 52-week and all-time high of $40.21. Fresh and lower resistance at $40-$40.25 was cleared and held with blue-sky territory towards $41-$41.50 on continued strength.

Rising support is at $39.75-$39.50 with a close back below the latter signaling a possible near-term top.

RSI has cleared lower resistance at 65-70. Continued closes above the latter would signaling additional strength towards 75 and the June peak.

Current support is at 60 with a move below this level signaling weakness towards 55-50.

We are allocating the portfolio as follows:

Long 30% in XLF closed on Monday at 28.50
Long 20% in XLK closed on Monday at 81.78
Long 30% in XLU closed on Monday at 64.07
Short 20% in XLE closed on Monday at 58.05

Option Traders… the following regular MONTHLY options meet our criteria:

XLF – 20DEC $28 Strike Price CALL (Expires December 20, 2019)
XLK20DEC $82 Strike Price CALL (Expires December 20, 2019)
XLU17JAN $63 Strike Price CALL (Expires January 17, 2020)
XLE17JAN $58 Strike Price PUT (Expires December 20, 2019)

All the best,
Roger Scott.