U.S. markets showed weakness for a 2nd-straight session while settling mostly lower to begin the week. Tensions with Iran remain elevated following fresh sanctions, while the G20 summit looms at the end of the week.

China trade relations also remain a big focus after Chinese vice commerce minister Wang Shouwen said China would like the U.S. to cancel inappropriate actions against its technology companies.

Volatility stayed slightly elevated while closing slightly lower but remains in no man’s land.

The Russell 2000 led the losses for the 2nd-straight session after sinking 1.1% and closing just off its session low of 1,531. Lower support at 1,550-1,535 was breached and failed to hold with the close below the 200-day moving average being a slightly bearish signal.

The Nasdaq gave back 0.3% following the late day backtest to 8,004.

Current and upper support at 8,000-7,950 held for the 3rd-straight session with a move below the latter getting 7,900-7,850 and the 50-day moving average back in focus.

The S&P 500 was lower by 0.2% after trading to a low of 2,944 ahead of the closing bell.

Near-term and upper support at 2,950-2,925 failed to hold with a move below the latter signaling additional weakness towards 2,900-2,875 and the 50-day moving average.

The Dow gained 8 points, or 0.03% with the morning peak reaching 26,806. Near-term and lower resistance at 26,800-27,000 was tripped but held with the all-time high at 26,951.

Materials led sector strength after advancing 0.4% while Consumer Staples rose 0.3%.

Energy was the weakest sector after falling 0.9% with Healthcare, Real Estate and Consumer Discretionary declining 0.5%.

Global Economy – European markets closed mostly in the red as Germany’s business climate outlook declined for the 4th-straight month.

Germany’s DAX 30 gave back 0.5% while the Stoxx 600 was down 0.3%.

The Belgium20 was lower by 0.2% and France’s CAC 40 slipped 0.1%. UK’s FTSE 100 edged up 0.1%.

Germany’s Ifo Institute for Economic Research reported its business climate reading for June fell to 97.4, matching forecasts, but down from May’s print of 97.9.

Asian markets settled higher across the board following signs of more easing in Australia.

Australia’s S&P/ASX 200 and China’s Shanghai rose 0.2%. Hong Kong’s Hang Seng and Japan’s Nikkei added 0.1%.

South Korea’s Kospi was up nearly a point, or 0.03%.

In the June monetary policy meeting minutes, the Reserve Bank of Australia said it was more likely than not that further easing would be appropriate, following a decision to lower the cash rate by 25 basis points to 1.25%.

Chicago Fed National Activity Index for May rose 0.43 points to -0.05 after falling 0.5 points to -0.48 in April. The 3-month moving average improved to -0.17 from April’s -0.37.

Dallas Fed Manufacturing Survey fell another 6.8 points to -12.1 in June, well below expectations of -1, after falling 7.3 points to -5.3 in May. This represented the lowest level since the -17.1 print in June 2016.

On the plus side, production rose to 8.9 from 6.3. However, the company outlook dropped to -5.5 from -1.7 while employment gauge slid to 8.8 from 11.6, with the workweek sliding to 4.7 from 6.4.

Wages dropped to 22.7 from 27.6 while new orders inched up to 3.7 from 2.4.

Prices paid jumped to 16.4 from 7.4, with the prices received at 1.2 from 0.7.

The 6-month outlook declined to -2.7 from 9.1, with employment at 20.2 from 28.9, wages at 39.6 from 32.8, and capex little changed at 22.5 from 22.8.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to close higher for the 9th time in 10 sessions after tapping an intraday peak of $132.53. Prior and lower resistance at $132.50-$133 was breached but held with the recent 52-week peak at $133.51.

Current support is at $132-$131.50 with backup help at $130.50-$130.

Market Analysis – The Invesco QQQ Trust (QQQ) was up for the 5th time in y sessions despite the intraday pullback to $188.06. Current and upper support at $188-$187.50 held.

A move below the latter would be a slightly bearish signal for a further backtest towards $185.50-$185.

Resistance from late April is at $189.50-$190.

Continued closes above the latter and the all-time high of $191.32 would signal a return of momentum with upside potential towards $192-$192.50.

RSI has leveled out with resistance at 70 and the high from early May. Continued closes above this level would signal additional strength towards 75-80 and April peaks.

Support is at 60-55 with a close below the latter signaling additional weakness.

The Consumer Discretionary Select Spiders (XLY) extended its losing streak to 2-straight sessions after trading to an intraday low of $118.84. Upper support at $119-$118.50 was breached and failed to hold.

A close below the latter opens up risk towards the $117.50 level.

Current resistance is at $119.50-$120.

Continued closes above the latter and the April all-time high of $120.90 would be a renewed bullish signal with blue-sky territory towards $122-$122.50.

RSI is in a downtrend with support at 60.

A close below this level opens up risk towards 55-50 with the latter representing the breakout level from earlier this month and prior resistance from mid-May.

Current resistance is at 65-70 and the latter representing the peak from last week.

Position Update

Markets are stale and all action is on the upcoming G20 meeting.

I’m not crazy about the current upside trading action and defensive stocks appear to be leading once again.

Tech is increasingly vulnerable if China and Trump come to stale mate.

We are allocating the portfolio as follows:

Buying 20% in XLK closed on Monday at 78.46
Buying 30% in XLRE closed on Monday at 37.67
Buying 25% in XLU closed on Monday at 61.01
Short 25% in XLE closed on Monday at 63.04

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

XLK20SEP $78 Strike Price CALL
XLRE15NOV $38 Strike Price CALL
XLU20SEP $61 Strike Price CALL
XLE20SEP $61 Strike Price PUT

All the best,
Roger Scott.