U.S. markets settled mostly higher on Wednesday with the blue-chips lagging following disappointing earnings from a number of Dow components.

The small-caps showed the most strength but Tech and the overall market stole the headlines after tapping fresh all-time highs.

Volatility continues to cool after falling below another key level of support and comes ahead of Thursday’s earnings parade.

Despite slightly overbought levels, signs are pointing towards continued strength ahead of next week’s key decision on interest rates.

The Russell 2000 rallied 1.6% after surging to an intraday high of 1,581.

Prior and upper resistance at 1,560-1,575 was cleared and held with fresh hurdles at 1,585-1,600 back in focus.

The Nasdaq rose 0.9% following the close at 8,321 and fresh all-time high.

New and lower resistance at 8,300-8,350 was cleared and held with blue-sky territory towards 8,425-8,500 on continued closes above the latter.

The S&P 500 climbed 0.5% following the run to 3,019 into the closing bell and new record peak.

Fresh and lower resistance at 3,025-3,050 was challenged but held on the 2nd-straight close above the 3,000 level.

The Dow was down 0.3% after trading in negative territory throughout the session and tapping a low of 27,191.

Prior and upper support at 27,250-27,000 was breached but held with a close below the latter being a slightly bearish development.

Financials paced sector strength after rising 1% while Communication Services and Technolgy gained 0.9% and 0.8%, respectively.

Consumer Staples led sector laggards after sinking 0.7% while Materials and Real Estate were lower by 0.1% to round out the losers.

Global Economy – European markets were mixed following disappointing economic news out of France and Germany.

Germany’s DAX 30 added 0.3% while the Stoxx 600 and the Belgium20 edged up 0.1%. UK’s FTSE 100 declined 0.7% and France’s CAC 40 slipped 0.2%.

Germany’s manufacturing PMI for July checked in at 43.1, down from 45.2 in June, and missing expectations of 45. Meanwhile, Germany’s services PMI hit a two-month low of 55.4, versus forecasts of 55.3, and below last month’s reading of 55.8.

France’s IHS Markit Purchasing Managers Index fell to a 2-month low of 51.7 for July, down from 52.7 in June, and below forecasts of 52.5.

Asian markets settled mostly higher in anticipation of the trade negotiations between the U.S. and China that will begin next week with White House officials looking at a longer-term timeline.

Australia’s S&P/ASX 200 and China’s Shanghai jumped 0.8%. Japan’s Nikkei advanced 0.4% and Hong Kong’s Hang Seng was higher by 0.2%. South Korea’s Kospi sank 0.9%.

MBA Mortgage Applications declined 1.9%, following a 1.1% slide previously, and the 4th consecutive weekly slide. The refinancing index dropped 2.1% after rebounding 1.5% in the prior week.

The purchase index was off 1.6% after the prior 3.8% drop. The 30-year fixed rate mortgage rate dipped back to 4.08% from 4.12% previously while the 5-year ARM dipped to 3.57% from 3.58%.

Manufacturing PMI slipped 0.6 points to 50 in July, down from 50.6 in June, and below forecasts of 50.8. Output fell to 48.9, missing estimates for a repeat of the 51.2 reading for June.

Meanwhile, the July services PMI rose 0.7 points to 52.2 versus June’s 51.5. The composite index inched up to 51.6 from 51.5.

New Home Sales for June rose 7% to 646,000, versus expectations of 660,000.

The months’ supply dropped to 6.3 versus 6.7. Regionally, sales declined in the Northeast and Midwest, and rose in the South and West.

The median sales price increased 2.3% to $310,400 after dropping 10% to $303,500 previously.

On a 12-month basis, price was unchanged versus -4.2% year-over-year previously.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to reached a high of $131.90.

Prior and lower resistance at $132-$132.50 was challenged but held with a close above $133 being a more bullish signal for additional strength.

Near-term support is at $131-$130.50 and the 50-day moving average.

Market Analysis – The Spider S&P 500 ETF (SPY) extended its winning streak to 3-straight sessions after trading to a fresh all-time intraday high of $301.44. Prior and lower resistance at $301-$301.50 was cleared and held.

A close above the latter would be a bullish signal for a continued breakout towards $302.50-$303.

Current support is at $300.50-$300.

A close below $299 would keep the current 11-session trading range intact with additional weakness towards $297.50-$297 and prior support from mid-month.

RSI is in an uptrend with resistance at 70-75 and the latter representing the high from earlier this month, as well as April.

A close above 75 would signal additional strength towards 80-85 and January 2018 levels. Support is at 65-60.

The iShares PHLX Semiconductor ETF (SOXX) closed in positive territory for the 3rd-straight session and for the 5th time in the past 6 after tapping an all-time high of $220.82.

Fresh and lower resistance at $220.50-$221 was cleared but held. Continued closes above the the latter would be a bullish signal for additional strength towards the $222-$222.50 area.

Current and undefined support is at $217.50-$215.

A close below the latter and the prior breakout level from mid-April would signal a short-term top with risk towards $212.50-$210.

RSI remains in a strong uptrend with resistance at 80 and the late April top.

While this is signaling overbought levels, a close above 80 could get 85 and the October 2017 peak in play. Support is at 75-70.

We are allocating the portfolio as follows:

Long 30% in XLF  closed on Wednesday at 28.58
Long 20% in XLU closed on Wednesday at 59.89
Short 25% in XLE closed on Wednesday at 63.49
Short 25% in XLV closed on Wednesday at 92.15

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.