U.S. markets started the shortened week in rally mode following more reports a phase one trade deal with China is on the verge of happening. Specifically, China said over the weekend that it plans to raise penalties on intellectual property violations.

Better-than-expected economic news and M&A activity also helped sentiment with the major indexes pushing prior resistance levels and fresh all-time highs.

The action in the small-caps was a bonus package. Meanwhile, volatility settled at a monthly low to confirm a possible run at continued record highs for the overall market.

The Russell 2000 zoomed 2.1% while tapping a fresh 52-week peak just south of 1,624. Fresh and lower resistance at 1,615-1,625 was recovered with a close above the latter getting 1,635-1,650 back in the mix.

The Nasdaq advanced 1.3% after testing an all-time high of 8,633 into the closing bell. New and lower resistance at 8,600-8,650 was cleared and held with a move above the latter signaling possible momentum towards 8,700-8,750.

The S&P 500 was higher by 0.8% following the late day run and close at 3,133 and new record high. Prior resistance at 3,125 was cleared and held with continued closes above this level keeping 3,150-3,175 in play.

The Dow also added 0.7% with the intraday high reaching 28,068. Key resistance at 28,000 was cleared and held with continued closes above this level and the all-time high at 28,090 getting 28,250-28,500 in focus.

Technology and Healthcare showed the most sector strength with gains of 1.4% and 1.1%, respectively. Utilities and Real Estate were down 0.4% and 0.1%, respectively, and were the only sector laggards.

Global Economy – European markets closed higher across the board on the latest trade developments.

UK’s FTSE 100 and the Stoxx 600 soared 1%. Germany’s DAX 30 and the Belgium20 rose 0.6% while France’s CAC 40 added 0.5%.

Asian markets were mostly higher on hopes of a trade agreement between the U.S. and China with the Chinese government now wanting stronger protections of intellectual property rights.

District council elections in Hong Kong also weighed on sentiment following major wins for pro-democracy parties.

Hong Kong’s Hang Seng jumped 1.5% and South Korea’s Kospi rallied 1%.

Japan’s Nikkei was up 0.8% and China’s Shanghai advanced 0.7%. Australia’s S&P/ASX 200 climbed 0.3%.

Chicago Fed National Activity Index slipped -0.26 points to -0.71, after dropping -0.68 points to -0.45 in September. The August index was revised to 0.23 from 0.15, while July was bumped to -0.40 from -0.41.

The 3-month moving average dipped to -0.31 from a revised -0.21 in September, while August was nudged up to -0.02 from -0.06. According to the report, 58 of the 85 components that make up the index made negative contributions, while 27 made positive contributions.

Dallas Fed Manufacturing Survey rose 3.8 points to -1.3 in November, topping forecasts for a print of -2.5, after tumbling -6.6 points to -5.1 in October.

The employment component dropped to 0.9 from 11, with wages at 21.1 from 22.2. New orders improved to -3 from -4.2. The prices paid index fell to 17.8 from 22.8 previously, while prices received declined to 1.9 from 4.8.

The 6-month general business activity index rose to 7.3 from 2.4, with the future employment index dipping to 20.6 from 23, while new orders slipped to 28.7 from 34.3, and capex tumbled to 9.8 from 22.9.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and the 5th time in 6 after testing a high of $140.53. Prior and lower resistance from last week and late October at $140.50-$141 was cleared but held.

A close above the latter would be an ongoing bullish signal for strength towards $142-$142.50.

Rising support is at $140-$139.50 and the 50-day moving average.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 2nd-straight session with the session high reaching $280.81. Current and lower resistance at $280.50-$281 was cleared and held.

A close above the latter and last Tuesday’s all-time peak at $280.84 would be an ongoing bullish development with near-term momentum towards $282.50-$283.

Near-term support is at $279.50-$279 with backup help at $277.50-$277.

A close below the $277 level and last week’s low of $276.72 would signal a possible topping process with additional risk towards the $275 level.

RSI is back in an uptrend after clearing resistance at 70.

Continued closes above this level would signal additional strength and a possible push towards 75-80 with the latter representing the monthly peak.

Support is at 65-60.

The iShares PHLX Semiconductor ETF (SOXX) snapped a 5-session slide after trading to a high of $235.42. Prior and lower resistance throughout the first half of the month at $235-$235.50 was recovered.

A close above the $236 level would signal continued strength and a possible retest towards $238.50-$240 and fresh all-time highs.

Current but shaky support is at $235-$234.50 with backup help at $232.50-$232.

A close below the $232 level would be a renewed bearish signal for a backtest towards $230-$229.50.

RSI is back in an uptrend after clearing and holding key resistance at 60 and prior support from late October. Continued closes above this level would signal additional strength towards 65-70 with the latter representing the monthly top.

Current support is at 55-50 with the latter level holding since late October.

We are allocating the portfolio as follows:

Long 25% in XLP closed on Monday at 61.40

Long 25% in XLU closed on Monday at 62.79

Long 25% in XLI closed on Monday at 82.29

Short 25% in XLE closed on Monday at 59.95

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.