U.S. markets showed continued momentum to start the week after Mexico reached a deal to avoid the implementation of tariffs that were set to start on Monday.

Meanwhile, Meanwhile, President Trump said he believes China will make a deal with the U.S. because they’re going to have to, adding the country is getting absolutely decimated by companies that are leaving China, going to other countries, including our own.

The higher highs continue to push key resistance levels but volatility only eased slightly and remains in neutral territory.

Fed speak is in a quiet period until next week’s minutes but talks of a rate cut, or two, continue to help momentum.

The S&P 500 extended its winning streak to 5-straight sessions after adding 0.5% while trading to a high of 2,904.

Prior and lower resistance from early May at 2,900-2,925 was cleared but held on the 2nd-straight close above the 50-day moving average.

The Dow was up for the 6th-straight session after gaining 0.3% and testing an intraday high of 26,210.

Near-term and lower resistance at 26,000-26,250 was recovered and held on the close back above the 50-day moving average.

The Nasdaq was higher by 1.1% after reaching a late day peak of 7,895 to
extend its winning streak to 5-straight sessions. Resistance from a month ago at 7,850-7,900 and the 50-day moving average was challenged but held.

The Russell 2000 climbed 0.6% following the intraday push to 1,535.

Lower and major resistance at 1,525-1,540 was cleared but held with more important hurdles at 1,545-1,560 and the 200/50-day moving averages.

Technology jumped 1% rallied to lead sector strength while Financials and Consumer Discretionary advanced 0.9%.

Utilities and Real Estate paced sector laggards after falling 0.7% and 0.4%, respectively.

Communication Services dipped 0.1% to round out the losers.

Global Economy – European markets were higher despite disappointing economic news out of Britain.

France’s CAC 40 climbed 0.3% and the Stoxx 600 edged up 0.2%. The Belgium20 gained 0.8% and UK’s FTSE 100 added 0.6%. Germany’s DAX 30 was closed for a holiday.

UK’s economy overall contracted by 0.4% in April after a 0.1% decline in March.

Growth in the three months to April slowed to 0.3% from 0.5% in the first quarter of 2019, while the annual growth rate fell to 1.3%.

Asian markets settled higher despite mixed Chinese trade data.

Hong Kong’s Hang Seng zoomed 2.3% and South Korea’s Kospi was higher by 1.3%.

Japan’s Nikkei soared 1.2% and Australia’s S&P/ASX 200 rose 1%. China’s Shanghai advanced 0.9%.

China May exports rose 1.1% versus expectations for a 3.8% decline. Imports sank 8.5% versus forecasts for a drop of 3.8%. Overall, China had a trade surplus of $41.65 billion for the month.

Jolts reported job openings dropped 25,000 to 7,449,000 in April, after bouncing 332,000 to 7,474,000 in March, and topping forecasts of 7,400,000.

The rate was unchanged at 4.7%, and is up from 4.5% in February. April hirings climbed 240,000 to 5,937,000 following the prior 2,000 gain to 5,697,000.

The hire rate edged up to 3.9% versus 3.8%. Quitters increased 21,000 to 3,482,000 after rising 14,000 to 3,482,000. The rate was unchanged at 2.3%.

May TD Ameritrade IMX Level checked in at at 4.93.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 3 session following the plunge to $130.32. Prior and upper support at $130.50-$130 was breached but held.

A close below the latter would signal a near-term top with risk towards $129-$128.50.

Lowered resistance is at $131-$131.50.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) was up for the 2nd-straight session after testing an intraday high of $66.41.

Current and lower resistance at $66.50-$67 held with more important hurdles at $67.50-$68 and the 50/200-day moving averages.

Near-term support at $65.50-$65.

A close below the latter would be a renewed bearish signal with downside risk towards $63.50-$63 and the late May low of $62.97.

RSI is in a slight uptrend with resistance at 50.

A move above this level would be a bullish signal for additional strength towards 55-60 with the latter representing the peak throughout much of April and into early May.

Support is at 45-40.

The Utilities Select Spider (XLU) was down for the 2nd-straight session after testing an intraday low of $59.35. Upper support from late May at $59.50-$59 was breached but held.

A close below the latter opens up risk towards $58.50-$58 and the 50-day moving average.

Lowered resistance is at $60-$60.50.

A close above the latter would be a renewed bullish signal with fresh resistance at $61-$61.50 with last Friday’s all-time high at $61.19.

RSI is in a downtrend with support at 55-50.

A move back below 50 would signal additional weakness towards 45-40 with the latter representing the late May low.

Resistance is at 60-65.

Existing Position Update

Cluster should gain premium since markets appear to be running out of directional momentum.

I’m expecting selling pressure to kick in.

Put/call ratio is telling me that buying is approaching extreme level, which means corrective pressure is closing in.

We are allocating the portfolio as follows:

Long 30% in XLRE  closed on Monday at 37.30
Long 20% in XLU  closed on Monday at 59.68
Short 30% in XLF  closed on Monday at 27.35
Short 20% in XLB  closed on Monday at 57.63

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

XLRE – 16AUG $36 Strike Price CALL (Expires August 16, 2019)
XLU – 20SEP $58 Strike Price CALL (Expires September 20, 2019)
XLF – 20SEP $26 Strike Price PUT (Expires September 20, 2019)
XLB – 20SEP $52 Strike Price PUT (Expires September 20, 2019)

Roger Scott.