U.S. markets were slightly weak to start Tuesday’s session but reversed course quickly after news broke that China said it will hold trade talks by phone with the U.S. in two weeks.
Also, the United States Trade Representative office said tariffs on some goods will be delayed until December 15th from the original September 1st deadline.
The apparent progress on the U.S. trade front helped relieve some market jitters as the major indexes pushed prior resistance levels. Volatility eased as well after closing back below 20 and a key level of support.
The Nasdaq jumped 2% after trading a high of 8,065 shortly after the opening bell.
Near-term and lower resistance at 8,000-8,050 was cleared and held with a close above the latter and the 50-day moving average getting 8,100-8,150 back in focus.
The S&P 500 soared 1.5% following the morning peak at 2,943 and close back above the 2,900 level. Lower resistance at 2,925-2,950 was tripped and held with a close above the latter and the 50-day moving average leading towards another run at 2,975-3,000.
The Dow also rallied 1.5% after trading to a first half high of 26,426.
Near-term and lower resistance at 26,400-26,600 was cleared but held with a close above the latter and the 50-day moving average being a bullish signal for a retest to 26,800-27,000.
The Russell 2000 rose 1.1% following the opening pop to 1,522.
Prior and lower resistance at 1,515-1,525 was breached but held with a close above the latter and the 200-day moving average getting 1,535-1,545 and the 50-day moving average back in play.
Technology zoomed 2.5% to lead sector strength while Consumer Discretionary and Communication Services gained 1.6% and 1.5%, respectively. There was no sector weakness.
Global Economy – European markets were weak on the open after soft economic news out of Germany bit recovered intraday following the latest developments on the U.S. / China trade front.
France’s CAC 40 jumped 1% and Germany’s DAX 30 was higher by 0.6%. The Stoxx 600 advanced 0.5% while the Belgium20 and UK’s FTSE 100 added 0.3%.
Germany’s Zew survey revealed economic sentiment in August dropped to -44.1, its lowest since December 2011, and well below estimates of -28.5.
The current conditions for the month checked in at -13.5, down from -6.5 in July, and worse than forecasts of -7.
Asian markets closed lower as tensions remained high in Hong Kong amid increasingly violent protests along with a GDP cut from Singapore.
Hong Kong’s Hang Seng sank 2.1% and Japan’s Nikkei fell 1.1%.
South Korea’s Kospi gave back 0.9% and China’s Shanghai was down 0.6%. Australia’s S&P/ASX 200 was off 0.3%.
Singapore cut its forecast range for gross domestic product to 0%-1% from its previous 1.5%-2.5% projection.
U.S. NFIB Small Business Optimism index rose 1.4% to 104.7 in July, topping forecasts for a print of 103, while representing the 5th increase over the last 6 months.
Plans to hire improved to 21%, after slipping to 19% in June. The percentage of firms expecting a better economy also increased to 20% from 16%, and is the best since November. Also rising were expectations for higher sales, and positions not able to fill.
U.S. chain store sales slumped 2.7%, reversing the 2.4% increase in the prior week. The 12-month clip was basically halved to a 1.7% year-over-year rate versus 3.3% previously, despite strength in department stores and apparel specialty stores as back-to-school shopping heated up.
CPI rose 0.3% in July, with the core rate up 0.3% as well, topping forecasts of 0.2% for both, and follows respective gains of 0.1% and 0.3% in June. On a 12-month basis, headline consumer prices posted a 1.8% year-over-year rate, up from the 1.6% previously.
The ex-food and energy component was at 2.2% year-over-year, versus 2.1% previously.
For the month, energy prices jumped 1.3% while personal computers rose 2.8%.
Tobacco gained 1% while food and beverage prices were up 0.1%.
Housing costs rose 0.3% and transportation costs rebounded 0.8%. Apparel prices were 0.4% higher while medical care rose 0.5%.
Real average hourly earnings fell -0.1% from 0.3%, and slowed to 1.3% year-over-year versus 1.5%.
Redbook Store Sales up 4.4% for the year in the week ending August 10th.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 2nd time in 3 sessions despite trading to a high of $143.91 and new 52-week peak.
Fresh and lower resistance at $144-$144.50 was challenged but held.
The fade to $141.95 afterwards held near-term and upper support is at $142-$141.50.
A close below the latter opens downside risk towards $140.50-$140.
Market Analysis – The Spider S&P 500 ETF (SPY) snapped a 2-session slide after taping an intraday high of $294.15. Upper resistance at $293.50-$294 was cleared but held on the close below the 50-day moving average.
Continued close above the $295 level and prior support from earlier this month and early July would be a more bullish development and signal a possible near-term bottom.
Current support is at $292-$291.50. A close below the latter reopens risk towards $290-$287.50.
RSI is back in an uptrend with resistance just below 50 and a hurdle from last week. A move above this level would signal additional strength towards 55-60 and mid-July peaks.
Support is at 45-40. A move below 40 would signal additional weakness towards 35-30 with the latter representing the monthly and late May low.
The Dow Jones Transportation Average ($TRAN) rebounded from the prior 2 sessions of losses after testing an intraday high of 10,271.
Near-term and lower resistance at 10,200-10,300 and the 200-day moving average was breached but a level that held into the closing bell. More important hurdles are at 10,400-10,500 and the 50-day moving average.
Current support is at 10,050-9,950 with the latter holding in 3 of the past 7 sessions.
A close below 9,950 would be a renewed bearish signal with risk towards 9,800-9,700 and late May lows.
RSI is back in an uptrend with resistance at 45.
A close below this level would be a bullish signal for additional strength towards 50-55. Support is at 40-35.
We are allocating the portfolio as follows:
Long 35% in XLF closed on Tuesday at 26.98
Long 25% in XLP closed on Tuesday at 59.59
Lonng 15% in XLY closed on Tuesday at 118.55
Short 25% in XLE closed on Tuesday at 59.03
Option Traders… the following regular MONTHLY options meet our criteria:
XLF – 20DEC $29 Strike Price CALL (Expires December 20, 2019)
XLP – 20SEP $61 Strike Price CALL (Expires September 20, 2019)
XLY – 20SEP $124 Strike Price CALL (Expires September 20, 2019)
XLE – 20SEP $62 Strike Price PUT (Expires September 20, 2019)
All the best,