U.S. markets settled higher on Tuesday following an agreement on the debt limit along with some progress on the U.S.-China trade front.

The early strength came after President Trump agreed to grant timely licensing decisions to U.S. tech firms that want to continue sales to a major Chinese Tech company.

Additional market momentum came after news broke U.S. negotiators are going to China this Monday for face-to-face talks through Wednesday.

The positive close keeps all-time highs in play for the major indexes with volatility closing below a key level of support after falling nearly 7%.

The S&P 500 was higher by 0.7% after closing on its session peak of 3,005.

Current and lower resistance at 3,000-3,025 was cleared and held with the record high from earlier this month at 3,017.

The Dow rose 0.7% after holding positive territory throughout the session while reaching a peak of 27,368.

Near-term and lower resistance at 27,250-27,500 was cleared and held with the all-time high at 27,398.

The Russell 2000 snapped a 2-session slide after advancing 0.7% while testing a session high of 1,555 into the closing bell.

Near-term and lower resistance at 1,555-1,560 held with continued closes above the 1,570 level being a more bullish signal selling pressure has abated.

The Nasdaq gained 0.6% following the intraday push to 8,251 and 2nd-straight close above the 8,200 level.

Fresh and lower resistance at 8,250-8,300 was cleared and held into the close with the all-time high at 8,264.

Materials were the strongest sector after zooming 2.1% while Industrials rallied 1.3%.

Financials and Real Estate soared 1%. Utilities were the only sector laggard after falling 0.6%.

Global Economy – European markets showed strength after Boris Johnson was elected to lead the Conservative Party, and will become U.K. prime minister on Wednesday.

Germany’s DAX 30 soared 1.6% and the Belgium20 advanced 1.2%. The Stoxx 600 rallied 1% and France’s CAC 40 was up 0.9%. UK’s FTSE 100 rose 0.6%.

The IMF lowered its global growth forecast to 3.2% in 2019, and 3.5% in 2020, both of which are 0.1% lower than the April projections.

Asian markets closed higher with Japan’s Nikkei jumping 1% and showing the most strength.

Australia’s S&P/ASX 200 and China’s Shanghai added 0.5%. South Korea’s Kospi gained 0.4% and Hong Kong’s Hang Seng climbed 0.3%.

U.S. chain store sales dropped another 0.6%, after falling 1.5% the prior week, and the 4th-straight weekly decline. Compared to last year, however, sales edged up to a 1.7% year-over-year clip versus 1.5% previously.

Redbook Store Sales up 4.9% for the year in the week ending July 20th.

FHFA House Price Index edged up 0.1% to 275 in May, missing forecasts for a rise of 0.3%. On a 12-month basis, the index is up 5% year-over-year versus 5.3% previously.

Six of the 9 regions posted gains, with the 0.5% increase in the South Atlantic leading the way, while 3 regions were a drag, with a 1% drop from the East South Central. Overall, the regions continue to record positive year-over-year changes.

Existing Home Sales fell 1.7% in June to a disappointing 5,270,000 rate versus forecasts for a print of 5,320,000.

Single family sales declined 1.5% after May’s 2.8% bounce, while condo/coop sales dropped 3.3% versus the 3.4% gain previously.

Regionally sales were down in the West (-3%) and South (-2.9%), higher in the Midwest (1.7%), and unchanged in the Northeast.

The months’ supply inched up to 4.4 from 4.3. The median sales price rose to $285,700, a fresh record high, versus $278,200 previously with prices up 4.3% year-over-year.

Richmond Fed Manufacturing Index Level for July checked in at -12, versus estimates for a print of 5, and follows June’s reading of 2. The employment component was -3 from 4, with wages at 20 from 25.

New order volume plunged to -18 from -2, while the order backlog was -26 from -3 and is the lowest since April 2009.

Capital expenditures fell to 7 from 18. Prices paid increased to a 3.04% pace versus 1.89%, while prices received rose to a 2.49% clip from 1.88%. The 6-month shipment index rose to 32 from 23.

The future employment index improved to 13 from 12, with wages at 44 from 52. New orders were 36 from 27. Prices paid were 2.33% from 2.50%, with prices received at 1.85% versus 1.87%.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) traded lower throughout the session while bottoming at $130.96. Prior and upper support at $131-$130.50 was breached but held.

A move below the latter would likely lead to a further pullback towards $130 and the 50-day moving average.

Lowered resistance at $131.50-$132.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 2nd-straight session after trading to an intraday high of $273.61.

Near-term and lower resistance at $273.50-$274 was cleared but held with the week ago and all-time peak at $273.99.

Current support is at $273-$272.50. A close below the latter would reopen risk towards the $270 level.

RSI is in a slight uptrend after clearing resistance at 70.

Continued closes above this level sets up a push towards 75 and the monthly peak. There is a chance for a run at 80 and the early November 2017 peak if 75 clears.

Current support is at 65-60 with the latter representing the monthly low.

The Spiders S&P Homebuilders ETF (XHB) extended its losing streak to 5-straight sessions following the intraday pullback to $41.18. Prior and upper support from mid-June at $41.50-$41 was breached and failed to hold.

A close below the latter and the 50-day moving average would be an ongoing bearish signal for additional weakness towards the $40.50-$40.

Lowered resistance is at $42-$42.50. Continued closes above the latter would be a more bullish signal selling pressure has been relieved.

RSI remains in a downtrend after failing support at 50 and a level that had been holding since June.

This was also the breakout level from late May and keeps risk towards 45-40 in play. Resistance is at 55-60.

Cluster Update

Expecting more congestion and possible downside next few sessions.

The current rally is narrow and vulnerable.

There’s higher chance of weakness over the near term.

Don’t expect markets to continue to rally without bumps in the road.

We are allocating the portfolio as follows:

Long 30% in XLF  closed on Tuesday at 28.33
Long 20% in XLU closed on Tuesday at 59.89
Short 25% in XLE closed on Tuesday at 63.16
Short 25% in XLV closed on Tuesday at 92.14

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.