U.S. markets showed strength on Tuesday’s open following another round of upbeat trade news with China.

Reports that the Trump Administration is considering rolling back additional tariffs, one of the Chinese demands for the deal, lifted the Dow and the Nasdaq hitting fresh all-time highs shortly after the open.

Momentum faded afterwards following mixed economic data with Tech and S&P 500 slipping into the red before a mostly higher close. Volatility traded in a tight range before settling slightly higher but is still at a bullish level for the market.

The Russell 2000 rose 0.1% following the intraday push to 1,608.

Major and lower resistance at 1,600-1,615 was cleared and held for the first time since early May with a close above the latter and the 52-week high at 1,618 getting 1,625-1,640 in focus.

The Dow also added 0.1% after testing an all-time intraday high of 27,560.

Fresh and lower resistance at 27,500-27,750 was cleared but held for the 2nd-straight session with a move above the latter signaling momentum towards the 28,000 level.

The Nasdaq nudged up a point, or 0.02%, while trading to an intraday record high of 8,457. Fresh and lower resistance at 8,450-8,500 was cleared but held for the 2nd-straight session with additional strength towards 8,600-8,650 on a close above the latter.

The S&P 500 slipped 0.1% despite tapping a high of 3,083 shortly after the opening bell. Fresh and lower resistance at 3,100-3,125 was challenged but held with a close above the latter leading to a possible run towards 3,150-3,175.

Financials and Consumer Staples showed the most sector strength after 0.4% and 0.3%, respectively.

Real Estate was the biggest sector laggard after sinking 1.7% while Utilities and Healthcare fell 1% and 0.7%, respectively.

Global Economy – European markets settled higher across the board following news the UK will hold a December general election for the first time since 1923 in a bid to break the Brexit impasse.

The Belgium20 was higher by 0.6% and France’s CAC 40 gained 0.4%. UK’s FTSE 100 climbed 0.3% and the Stoxx 600 added 0.2%. Germany’s DAX 30 edged up 0.1%.

UK PMI edged up to 50 in October from 49.5 in September.

Asian markets closed in positive territory on news the Trump administration was considering removing some tariffs on Chinese goods, which is something Beijing has been pushing for.

Japan’s Nikkei surged 1.7% to settle at a fresh 2019 high. South Korea’s Kospi gained 0.6% while China’s Shanghai and Hong Kong’s Hang Seng rose 0.5%. Australia’s S&P/ASX 200 advanced 0.2%.

China’s Caixin/Markit services Purchasing Managers’ Index for October came in at 51.1, the lowest reading since February.

International Trade in Goods deficit narrowed -4.7% to -$52.5 billion in September, close to expectations, after widening 1.9% to a revised -$55 billion shortfall in August.

Total goods and services exports dropped -0.9% after August’s 0.2% increase, while imports declined -1.7% from the prior month’s 0.5% gain.

The “real” goods trade deficit flattened to -$82.6 billion versus August’s -$85.8 billion, with exports declining -1% and imports down -2%, after respective gains of 1.1% and 0.9%.

The trade deficit with China was -$31.6 billion versus August’s -$31.8 billion, with Canada’s balance at -$2.5 billion versus -$1.4 billion.

PMI Services Index for October fell to 50.6 from 50.9 in September, below estimates of 51. The employment component dropped to 47.5 from September’s 48.6. The final composite index fell to 50.9 versus September’s reading of 51.

JOLTS report showed job openings dropped 277,000 to 7,024,000 in September, matching expectations, after rising 127,000 in August to a revised 7,305,000.

The JOLTS rate fell to 4.4% from 4.6%. Hirings were up 50,000 to 5,934,000 following the -94,000 decline to 5,884,00, with the rate steady at 3.9%. Quitters slid -103,000 to 3,498,000, extending the -67,000 decline to 3,601,000. The quit rate dipped to 2.3% from 2.4%.

ISM Non-Manufacturing Index rebounded 2.1 points to 54.7 in October, versus forecasts for a print of 53.5, while recouping much of the -3.8 decline to 52.6 in September.

The employment component rose to 53.7 after sliding -2.7 points to 50.4 previously, another indication of the strong labor market. New orders rallied to 55.6 following the -6.6 September drop to 53.7.

New export orders fell to 50 following the 1.5 point rise to 52 previously. The prices paid index slipped to 56.6 rising 1.8 ticks to 60 in the prior month

Redbook Store Sales were up 5.5% for the year in the week ending November 2nd.

Market Sentiment – Richmond Fed Thomas Barkin said the economy is healthy and the recession risk is low while adding the rate cuts reflected uncertainties over the outlook.

Risks are still tilted to the downside, however, and he said he is closely monitoring conditions to see if the FOMC’s recent insurance purchases are having their desired effects.

Barkin added firms are frustrated with political polarization and there is a high degree of uncertainty about the outlook for government policies. He noted that uncertainties can dampen the effectiveness of the Fed’s easings, and result in less bang for the buck.

Dallas Fed Robert Kaplan is feeling better with a more normally shaped yield curve, and sees it as a sign that the Fed now has policy in the right place.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 3-straight sessions following the intraday pullback to $136.73. Prior and lower support at $137.50-$137 was breached but held.

A close below the latter and the late October low at $136.99 would signal fresh risk towards $136.50-$136 and mid-September levels.

Lowered resistance is $137.50-$138.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 3rd-straight session and 7 of the past 8 with Tuesday’s fresh all-time high reaching $275.51.

Blue-sky and lower resistance at $275.50-$276 was cleared but held with a close above the latter signaling additional momentum towards $277-$277.50.

Near-term support is at $274-$273.50. A close below the latter would signal a possible backtest towards $272-$271.50.

RSI is showing signs of leveling out with early July resistance at 70. A close above this level would signal additional strength towards 75-80 but overbought levels.

Support is at 65-60. A move below the latter would be a slightly bearish signal for a retest towards 55-50.

The Utilities Select Spider (XLU) extended its losing streak to 3-straight sessions following the intraday pullback to $62.45. Major support at $63, and a level that has been holding since mid-October, was breached and failed to hold.

A close below the $62.50 level would be an ongoing bearish signal with downside risk towards $62-$61.50 and mid-September lows.

Key resistance is at $63.50 and the 50-day moving average.

A close back above this level would be a slightly bullish signal selling pressure has abated.

RSI remains in a downtrend after closing below key support at 40.

This opens up additional weakness towards 35-30 with the latter representing the December 2018 low. Resistance is at 45-50.

We are allocating the portfolio as follows:

Long 25% in XLP closed on Tuesday at 60.74
Long 25% in XLU closed on Tuesday at 62.2769
Long 25% in XLV closed on Tuesday at 93.75
Short 25% in XLE closed on Tuesday at 61.43

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

XLP – 17JAN $61 Strike Price CALL (Expires January 17, 2020)
XLU – 17JAN $64 Strike Price CALL (Expires January 17, 2020)
XLV – 17JAN $95 Strike Price CALL (Expires January 17, 2020)
XLE – 17JAN $58 Strike Price PUT (Expires December 20, 2019)

All the best,
Roger Scott.