U.S. markets showed continued strength on Tuesday following reports the Trump administration granted an extension for U.S. companies to do business with blacklisted Chinese telecom companies. News that Japan passed a limited trade deal with the U.S. helped offset China trade concerns.

President Trump threatened higher tariffs on Chinese goods if the country does not make a deal on trade. Trump’s comments came during a meeting with the Cabinet, following news China will not agree to a trade deal unless both sides drop all tariffs.

The Russell 2000 rallied 0.4% following the late day push just south of 1,603. Near-term and lower resistance at 1,600-1,615 was cleared but held with a move above the latter and the May 52-week high at 1,618 getting 1,625-1,640 in play.

The Nasdaq gained 0.2% after testing a 2nd-half high of 8,589. Fresh and lower resistance at 8,550-8,600 was cleared and held with a close above the latter opening up unchartered territory towards 8,650-8,700.

The S&P 500 slipped nearly 2 points, or 0.1%, to snap a 5-session winning streak despite tagging a fresh record high of 3,127 shortly after the open. Current and lower resistance at 3,125-3,150 held with strength towards 3,175-3,200 on a close above the latter.

The Dow dropped 0.4% after trading to a 1st half low of 27,894 while closing back below the 28,000 level. Near-term and upper support at 27,800-27,600 easily held with a close below the latter being a slightly bearish signal.

Healthcare was up 0.7% to pace sector strength while Financials, Real Estate and Technology added 0.3%. Energy and Consumer Discretionary were the weakest sectors after falling 1.5% and 1.1%, respectively.

Global Economy – European markets settled mixed as UK politics remained in focus with Party leader Jeremy Corbyn scheduled to go head-to-head with Prime Minister Boris Johnson in the election’s first televised leaders’ debate.

UK’s FTSE 100 climbed 0.2% and Germany’s DAX 30 edged up 0.1%. France’s CAC 40 fell 0.4% and the Belgium20 was lower by 0.2%. The Stoxx 600 slipped 0.1%.

Asian markets were also mixed amid concerns over the state of the U.S./ China trade negotiations along with reports North Korea is not interested in a resumption of talks with the U.S. unless it gets something in return.

Hong Kong’s Hang Seng surged 1.6% and China’s Shanghai rallied 0.9%. Australia’s S&P/ASX 200 was higher by 0.7%. Japan’s Nikkei lost 0.5% and South Korea’s Kospi gave back 0.3%.

Housing Starts rebounded 3.8% to a 1,314,000 pace in October after falling -7.9% to 1,266,000 in September. Building permits bounced 5% in October to 1,461,000 following September’s -2.4% drop to 1,391,000.

Single family starts were up for the 5th-straight month after rising 2% and follows September’s 1% gain.

Multifamily starts rebounded 8.6% after a -25.3% September pullback. Housing completions rose 10.3% in October versus -9.1% in September.

U.S. chain store sales edged up 0.5% last week following the prior week’s 1.8% gain. On a 12-month basis, sales posted a solid 2.8% year-over-year clip, though decelerating from the prior 4.3% rate, which is the strongest clip of the year so far.

The report noted holiday sales are underway with analysts expecting the shorter holiday season sustaining a solid pace.

Redbook Store Sales were up 4.1% for the year in the week ending November 16th.

Quarterly Services Survey reported revenue was up 0.8% for the quarter and 5.6% for the year.

E-Commerce Retail Sales were up 5% for the quarter.

Market Sentiment – New York Fed John Williams believes monetary policy is in the right place, and said the Fed will stick to its data dependent approach.

He said the rate cuts have been very effective in addressing the three challenges the FOMC has faced, including slowing global growth, geopolitical uncertainty (including Brexit), and muted inflation pressures globally.

He also thinks the Fed is very close to achieving its inflation goal.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and 6th of the past 7 following the intraday run to $139.24. Prior and lower resistance from late October at $139-$139.50 was cleared and held.

A close above the $140 level and the 50-day moving average would be ongoing bullish signals for strength towards $141.50-$142.

Rising support is at $138.50-$138.

A move below the $137 level would signal a near-term top with additional risk towards $136-$135.50.

Market Analysis – The Invesco QQQ Trust (QQQ) extended its winning streak to 3-straight and was up for 5th time in 6 sessions after tapping a fresh all-time peak of $203.84.

Fresh and lower at resistance at $203.50-$204 was cleared but held. Continued closes above the latter would be an ongoing bullish signal with upside potential towards $205-$207.50, depending on melt-up momentum.

Current support is at $203-$202.50. A close below the latter would signal a possible near-term top with backtest potential towards $200.50-$200.

RSI remains in a uptrend after clearing July resistance at 70.

Continued closes above this level keeps upside potential towards 75-80 in play with the latter representing the April peak. Support is at 65-60.

The Dow Jones Transportation Average ($TRAN) have been in a mini 5-session trading range after testing an intraday low of 10,811. Key support at 10,800 was challenged but held.

A close below this level would signal additional weakness towards 10,700-10,600 and the 50-day moving average.

Near-term resistance is at 10,900.

Continued closes above this level would be a renewed bullish development for a retest towards 11,000-11,200 with the current 52-week peak at 11,226 set earlier this month.

RSI is in a slight downtrend with support at 50 and a level that has been holding since mid-October. A close below this level would signal additional weakness towards 45-40.

Resistance is at 60. A close above this level would be a renewed bullish signal for additional strength towards 65-70.

We are allocating the portfolio as follows:

Long 25% in XLP closed on Tuesday at 61.57

Long 25% in XLU closed on Tuesday at 62.81

Long 25% in XLI closed on Tuesday at 81.82

Short 25% in XLE closed on Tuesday at 58.45

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

XLP – 17JAN $60 Strike Price CALL

XLU – 17JAN $62 Strike Price CALL

XLI – 17JAN $82 Strike Price CALL

XLE – 17JAN $59 Strike Price PUT

All the best,
Roger Scott.