U.S. markets showed continued momentum on Monday after President Trump offered another upbeat assessment on the progress in the U.S./ China trade talks.
Trump said phase one talks with China are ahead of schedule with the agreement expected to be signed in November.
The rally helped push the major indexes towards and past all-times highs on the open with much of the gains holding into the closing bell. One sour note was the action in the VIX Index as volatility stayed slightly elevated throughout the session.
The Nasdaq rallied 1% after testing an intraday high of 8,335.
Prior and lower resistance from July at 8,300-8,350 was cleared and held with a close above the latter and the all-time high at 8,339 getting 8,450-8,500 in play.
The Russell 2000 surged 0.9% following the 2nd half push to 1,576.
Early September and upper resistance at 1,560-1,575 was cleared but held with continued closes above this level keeping 1,585-1,600 in play.
The S&P 500 was higher by 0.6% after opening at an all-time high of 3,032 while topping out at 3,044.
Fresh and lower resistance at 3,050-3,075 was challenged but held with a possible melt-up rally towards 3,100-3,125 on a move above 3,075.
The Dow rose 0.5% after trading to a high of 27,167 while holding the 27,000 level throughout the session.
Lower resistance from mid-September and early July at 27,200-27,400 was challenged but held with the all-time high at 27,398.
Technology and Healthcare were the strongest sectors after soaring 1.3% and 1%, respectively, while Communications Services popped 0.9%. Utilities and Real Estate were the leading sector laggards for the 2nd-straight session after sinking 1.4% and 1.1%, respectively.
Energy and Consumers Staples were down 0.6% and 0.2% to round out the losers.
Global Economy – European markets closed higher after the EU agreed to accept the UK’s request for a Brexit extension until January 31st 2020 with the decision expected to be formalized through a written procedure.
The UK will now be able to leave the EU at any point before the new deadline, providing British Prime Minister Boris Johnson can secure approval from Parliament on his exit deal.
The Belgium20 gained 0.5% and Germany’s DAX 30 rose 0.4%. The Stoxx 600 was up 0.3% and France’s CAC 40 advanced 0.2%. UK’s FTSE 100 nudged up 0.1%.
Asian markets showed strength despite news Hong Kong has fallen into recession and is unlikely to achieve annual economic growth this year.
China’s Shanghai rallied 0.9% and Hong Kong’s Hang Seng jumped 0.8%.
Japan’s Nikkei and South Korea’s Kospi added 0.3% while Australia’s S&P/ASX 200 was up nearly 2 points, or 0.02%.
Hong Kong’s Financial Secretary Paul Chan said Hong Kong is now in a recession and it is extremely difficult to achieve the government’s original forecast of 0%-1% annual growth made before the protests.
Chan added that preliminary estimates for third-quarter growth would show two consecutive quarters of contraction and the technical definition of a recession.
International Trade in Goods for September narrowed to -$70.4 billion versus forecasts of -$73.5 billion. Exports declined -1.6% to $135.9 billion after rising 0.3% to $138.1 billion in August.
Imports dropped -2.3% to $206.3 billion following August’s 0.5% gain to $211.1 billion. Advance wholesale inventories fell -0.3% to $677.4 billion in September, while retail inventories increased 0.3% to $677.1 billion.
Chicago Fed National Activity Index for September checked in at -0.45.
The 3-month average fell to -0.24 from -0.06. According to the report, 54 of the 85 components made negative contributions, while 31 made positive contributions.
Retail Inventories for September were up 0.3% while Wholesale Inventories for September were down -0.3% for the month.
Dallas Fed Manufacturing Survey for October came in at -5.1 versus estimates for a print of 1.2.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell out of a 5-session trading range following the intraday dive to $136.99. Prior and upper support at $137-$136.50 was breached but held.
A close below the latter and the September low at $136.54 would signal additional weakness towards $134.50-$134 and levels from early August.
Current and lowered resistance is at $137.50-$138.
Market Analysis – The Spider S&P 500 ETF (SPY) extended its winning streak to 4-straight sessions and 5 of the past 6 after trading to a fresh all-time high of $303.85.
New and lower resistance at $303.50-$304 was cleared but held. A close above the latter would be an ongoing bullish signal with blue-sky territory towards $305-$307.50, depending on momentum.
Current and rising support is at $302-$301.50.
A move below the latter would signal a possible backtest towards $300.50-$300.
RSI remains in an uptrend with resistance at 65-70 and the latter representing the June/ July peak.
A close above 70 would signal additional strength towards 75 and the late April high. Support is at 60-55.
The Health Care Select Sector Spider (XLV) was up for the 2nd-straight session after trading to an intraday high of $93.20. Prior and lower resistance from early July at $93-$93.50 was cleared and held by a penny.
Continued closes above the latter would be a bullish signal for a retest towards $94-$94.50 with the early July peak at $94.42. The 52-week and all-time high is at $95.92 from last December.
Fresh support is at $92.50-$92. A close below the latter would likely signal a possible near-term top with additional selling pressure towards $91.50-$91.
RSI is back in an uptrend with resistance at 65. Continued closes above this level would be a bullish development for additional strength towards 70-75 and the latter representing the June high.
Support is at 60 with a move back below this level signal additional weakness towards 55-50.
We are allocating the portfolio as follows:
Long 30% in XLF closed on Monday at 28.79
Long 20% in XLK closed on Monday at 83.97
Long 30% in XLU closed on Monday at 63.28
Short 20% in XLE closed on Monday at 59.18
Option Traders… the following regular MONTHLY options meet our criteria:
XLF – 20DEC $28 Strike Price CALL (Expires December 20, 2019)
XLK – 20DEC $82 Strike Price CALL (Expires December 20, 2019)
XLU – 17JAN $63 Strike Price CALL (Expires January 17, 2020)
XLE – 17JAN $58 Strike Price PUT (Expires December 20, 2019)
All the best,