U.S. markets traded mostly to the upside throughout Monday’s session with the blue-chips lagging for the 4th-straight session as trade talks between the Trump administration and China began in Beijing.

The Russell 2000 rallied 0.8% following the late day surge to 1,519 into the close.

Upper resistance at 1,510-1,520 held with continued closes above 1,525 being a more bullish development.

The Nasdaq added 0.1% after testing an opening high of 7,343. Prior and lower resistance from last week at 7,350-7,400 held with a close above the latter signaling additional strength towards 7,450 and

the 200-day moving average.

The S&P 500 was also up 0.1% after tapping a high of 2,718 shortly after the opening bell.

Lower resistance at 2,725 easily held with a more important hurdle to clear at 2,750 and the 200-day moving average.

The Dow was down 0.2% following the intraday backtest to 25,009.

Upper support at 25,000-24,800 and the 200-day moving average held for the 3rd-straight session with a close below the latter being a slight bearish signal.

Industrial and Energy were sector leaders after after gaining 0.5%. Consumer Staples, Financials and Real Estate advanced 0.3%.

Communication Services paced sector laggards after giving back 1%.

Healthcare declined 0.1% while Technology and Utilities slipped 0.04% to round out the losers.

Global Economy – European markets ended higher as another round of Brexit talks between the U.K. and Brussels began again on Monday.

However, the chances of a disorderly exit from the EU continue to mount, with only seven weeks left until the U.K. is set to leave.

France’s CAC 40 surged 1.1% and Germany’s DAX 30 jumped 1%.

The Stoxx 600 Europe advanced 0.9% and UK’s FTSE 100 was higher by 0.8%. The Belgium20 gained 0.7%.

U.K.’s gross domestic product (GDP) was 1.4% higher in 2018 than in 2017, the weakest expansion since 2012. GDP rose at an annualized pace of 0.7% in the three months through December, down from 2.5% in the third quarter.

Asian markets settled mostly higher with markets in China and Taiwan, reopening after a weeklong Lunar New Year break. Japan’s Nikkei was closed for a holiday.

China’s Shanghai surged 1.4% and Hong Kong’s Hang Seng rose 0.6%.
South Korea’s Kospi added 0.2% while Australia’s S&P/ASX 200 slipped 0.2%.

There was no major economic news.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 5 sessions following the pullback to $121.77.

Fresh and upper support at $121.50-$121 held with backup help at $120-$119.50 and the 50-day moving average that remains in a strong uptrend.

Lowered resistance is at $122-$122.50.

Market Analysis – The Invesco QQQ Trust (QQQ) was up for the 2nd-straight session following the intraday push to $169.58. Near-term resistance is at $169.50-$170 held.

The QQQ’s have been in a mini trading range for 8 sessions and a close above $171 and the 200-day moving average would be a bullish development for higher highs.

Support is at $167.50-$167.

A move below the latter signaling a possible retest towards $166-$165.

RSI is flatlining with resistance at 60.

A close above this level would signal additional strength towards 65-70 with the latter representing late August resistance.

Support is at 55-50 with the latter holding since mid-January.

The Real Estate Select Sector Spider (XLRE) closed higher for the 3rd-straight session and for the 5th time in 6 after making a run to $34.72.

Fresh and lower resistance at $34.75-$35 held on the new 52-week peak and all-time high. A close above the latter would be a bullish signal for higher highs.

Rising support is at $34.50-$34.25 with a move below $34 signaling additional weakness and a possible near-term top.

RSI is signaling overbought levels with resistance at 75.

A move above this level would signal additional strength towards 80 with the latter representing the November 2017 peaks.

Support is at 70 with a close below this level signaling additional weakness.

Position Update

Market Bias is pointing towards another leg up. I’m expecting SP 500 to follow blue chips above the 200 day line.

Expect energy stocks to trade lower and more upside from defensive stocks such as utilities and health care.

I believe our positioning is stable at this time.

We are allocating the portfolio as follows:

Long 25% in XLU closed on Monday at 55.66

Long 25% in XLV closed on Monday at 89.83

Long 25% in XLY closed on Monday at 107.32

Short 25% in XLE closed on Monday at 63.24

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

XLU – JUN 55 CALL (Expiration Date June 21, 2019)

XLV – JUN 90 CALL (Expiration Date June 21, 2019)

XLY – JUN 107 CALL (Expiration Date June 21, 2019)

XLE – JUN 65 PUT (Expiration Date June 21, 2019)

All the best,
Roger Scott.