U.S. markets were choppy throughout Thursday’s session after trading in wider ranges before settling higher following the latest round of mixed 2Q earnings.

News that an impasse over restrictions on Chinese Tech companies also weighed on trade sentiment at the open before the second half recovery.

The afternoon turnaround was helped by Fed speak along with a drop in volatility towards prior support levels.

The gains weren’t enough to offset this week’s losses but helped keep the major indexes within striking distance of all-time highs and the possibility of a positive week on a follow through Friday.

The S&P 500 was higher by 0.4% after tapping a 2nd half high of 2,998.

Prior and lower resistance at 3,000-3,025 held with Monday’s all-time high at 3,017.

The Nasdaq added 0.3% following the late day push to 8,215.

Current and lower resistance at 8,200-8,275 was cleared and held with Monday’s all-time high at 8,264.

The Russell 2000 also rose 0.3% while tapping a high of 1,557 in the final hour of action.

Current and lower resistance at 1,560-1,575 was challenged but held with a move above the latter being a more bullish signal for additional strength.

The Dow was up 3 points, or 0.01% after trading in a 198-point range while testing an intraday high of 27,266.

Near-term and lower resistance at 27,250-27,500 was tripped but held with Tuesday’s record peak at 27,398.

Utilities, Financials and Technology paced sector strength after advancing 0.8% while Consumer Staples gained 0.7%.

Communication Services led sector laggards after falling 0.9% while Consumer Discretionary and Real Estate dipped 0.1%.

Global Economy – European markets were weak for the 2nd-straight session despite better-than-expected economic news out of Britain.

Germany’s DAX 30 dropped 0.9% and UK’s FTSE 100 fell 0.6%. France’s CAC 40 was down 0.4% while the Belgium20 and the Stoxx 600 slipped 0.2%.

UK retail sales grew 1% in June, snapping 2 months of negative growth, and topping forecasts for a decline of 0.3%.

Asian markets closed lower across the board following renewed concerns over the China/ U.S. trade war and disappointing economic news out of Japan.

Japan’s Nikkei tanked 2% and China’s Shanghai sank 1%. Hong Kong’s Hang Seng declined 0.5% and Australia’s S&P/ASX 200 was off 0.4%. South Korea’s Kospi was lower by 0.3%.

Japan’s exports fell -6.7% in June, worse than expectations for a -5.6% decline.

Australia’s unemployment rate remained at 5.2% in June, with an increase of 500 new jobs, but well below expectations of 10,000 new positions.

The Bank of Korea announced that it was cutting the base rate by 25 basis points to 1.5%.

Initial Jobless Claims rose 8,000 to 216,000, just above forecasts for a print of 215,000, and follows the 14,000 drop to 208,000 previously. The 4-week moving average slid to 218,750 from 219,000.

Continuing claims declined 42,000 to 1,686,000 following the previous 32,000 increase to 1,728,000.

Philadelphia Fed Business Outlook Survey zoomed 21.5 points to 21.8 in July, blasting past expectations for a print of 4.5. The employment component nearly doubled to 30 from 15.4, with the workweek at 23 from 7.3.

New orders climbed to 18.9 from 8.3. Prices paid rose to 16.1 from 12.9, with prices received increasing to 9.5 from 0.6. The 6-month general business outlook index surged to 38 from 21.4.

The future gauge on employment dipped to 24.9 from 27, with new orders at 45.7 from 31.5. The prices paid component was at 35.3 from 30.2, and prices received at 34.1 from 24.4. Capex improved to 36.9 from 28.

Leading Indicators declined 0.3% in June to 111.5, missing expectations for a rise of 0.1%, and the first decline since December.

Four of the 10 components made negative contributions, led by building permits (-0.18%), ISM new orders (-0.12%) and jobless claims (-0.11%).

The remaining 6 indicators made small positive contributions, paced by the workweek (0.07%).

Market Sentiment – St. Louis Fed James Bullard said trade uncertainty is high and he doesn’t expect it will decline any time soon.

He said the Fed should cut rates now and do so one more time later this year due to worries that a trade war with China, Europe and other parts of the world could hurt the US economy.

Bullard added an easing now would be insurance against a slowdown while also indicating a couple of cuts could shift the yield curve upward.

He said there is not much inflation currently, and that has been an ongoing concern for him.

New York Fed John Williams said the central bank needed to act quickly when the economy was slowing and rates were low, adding that it is better to take preventative measures than to wait for disaster to unfold.

The iShares 20+ Year Treasury Bond ETF (TLT) traded in negative territory throughout the 1st half of action while testing a low of $131.24.

Upper support at $131-$130.50 held with risk towards $130-$129.50 and the 50-day moving average on a move below the latter.

Lower resistance at $132-$132.50 was breached and held on the rebound to $132.32 afterwards.

Market Analysis – The S&P 400 Mid Cap Index ($MID) closed in positive territory despite testing a fresh monthly low of 1,931 shortly after the opening bell. Near-term and prior support at 1,930-1,925 held.

A move below the latter would be a renewed bearish development with risk towards 1,900 and the 50-day moving average

Near-term and lower resistance at 1,950-1,960 held on the bounce to 1,946 afterwards.

Continued closes above 1,965 would be a more bullish development for a run towards 1,975-1,980 and early May peaks.

RSI is in a slight uptrend after holding support at 50.

A close below this level would be a bearish development and signal additional weakness towards 45-40. Resistance is at 60-65 with the latter representing this month’s top.

The Dow Jones Transportation Average ($TRAN) rebounded from the prior session pullback after reaching an intraday high of 10,542.

Major resistance from earlier this month at 10,500 and the upside breakout level that took place late last week was cleared and held.

Continued closes back above the 10,600 level would be a more bullish signal volatility has simmered with additional hurdles at 10,700-10,800.

Current support is at 10,400 followed by mote crucial levels at 10,350-10,300 and the 50/200-day moving averages.

RSI is back in a slight uptrend after holding key support at 50. A close below this level would signal additional risk towards 45 and prior support from late June.

Resistance is at 55-60 with a move above the latter signaling a possible run at 70 and the late April peak.

We are allocating the portfolio as follows:

Long 30% in XLF  closed on Thursday at 28.11
Long 20% in XLU closed on Thursday at 61.26
Short 25% in XLE closed on Thursday at 62.48
Short 25% in XLV closed on Thursday at 92.71

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

XLF – 20SEP $28 Strike Price CALL (Expires September 20, 2019)
XLU – 20SEP $61 Strike Price CALL (Expires September 20, 2019)
XLE20SEP $64 Strike Price PUT (Expires September 20, 2019)
XLV – 20SEP $93 Strike Price PUT (Expires September 20, 2019)

All the best,
Roger Scott