U.S. markets opened with strong gains on Wednesday following solid earnings numbers from the retail sector and better-than-expected economic news on home sales.

The afternoon Fed minutes didn’t provide strong clues on the direction of rates, and there was little market reaction afterwards as the major indexes maintained momentum.

The gains helped recover the prior session losses with near-term resistance levels being reclaimed.

Volatility eased after closing below key levels of support but sandwiched between its 50-day and 200-day moving averages.

The Nasdaq jumped 0.9% after trading a midday peak of 8,036.

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 added 0.8% following the late day trip to 2,928.

Lower resistance at 2,925-2,950 was breached but held with a close above the latter and the 50-day moving average getting 2,975-3,000 in play.

The Dow rallied 0.9% after trading to an intraday high of 26,268.

Near-term and lower resistance at 26,200-26,400 was cleared and held with additional hurdles at 26,600 and the 50-day moving average.

The Russell 2000 rose 0.8% following the second half run to 1,512.

Prior and lower resistance at 1,515-1,525 and the 200-day moving average was challenged but held with a close above the latter getting 1,535-1,545 and the 50-day moving average back in play.

Consumer Discretionary and Technology soared 1.9% and 1.2%, respectively, to lead sector strength while Healthcare gained 0.7%. There was no sector weakness.

Global Economy – European markets settled with solid gains ahead of upcoming Brexit meetings.

France’s CAC 40 surged 1.7% and Germany’s DAX 30 jumped 1.3%. The Stoxx 600 rallied 1.2% while UK’s FTSE 100 and the Belgium20 rose 1.1%.

Asian markets traded on little news flow to settle mixed as traders await guidance from central bankers into the end of the week.

Hong Kong’s Hang Seng and South Korea’s Kospi added 0.2% while China’s Shanghai was up a third-point, or 0.01%

Australia’s S&P/ASX 200 fell 0.9% and Japan’s Nikkei was lower by 0.3%.

MBA Mortgage Applications fell 0.9% last week after surging 21.7% previously.

On a 12-month basis, the index is up 73.1% year-over-year. Weakness was in the purchase index which declined 3.5%, while refinancings edged up 0.4% following the prior 36.9% surge.

The 30-year mortgage rate dipped further to 3.9% from 3.93% in the prior week. The 5-year adjustable rate fell to 3.35% versus 3.43%.

Existing Home Sales for July rebounded 2.5% to 5,420,000, topping estimates of 5,385,000, and the strongest pace since February.

All the strength was in the single family component which posted a 2.8% gain to 4,840,000 versus 4,710,000 previously.

The more volatile condo/coop sales were unchanged at 580,000. The months’ supply slid to 4.2 from 4.4.

The median sales price fell to $280,800 from $285,300 and is up 4.3% year-over-year.

Market Sentiment – The FOMC minutes stated that a couple of participants indicated that they would have preferred a 50 basis point cut in the federal funds rate at the prior meeting rather than a 25 basis point reduction.

They favored a stronger action to better address the stubbornly low inflation rates of the past several years, recognizing that the apparent low sensitivity of inflation to levels of resource utilization meant that a notably stronger real economy might be required to speed the return of inflation to the Committee’s inflation objective.

Several participants favored maintaining the same target range at this meeting, judging that the real economy continued to be in a good place, bolstered by confident consumers, a strong job market, and a low rate of unemployment.

These participants acknowledged that there were lingering risks and uncertainties about the global economy in general, and about international trade in particular, but they viewed those risks as having diminished over the intermeeting period.

In addition, they viewed the news on inflation over the intermeeting period as consistent with their forecasts that inflation would move up to the Committee’s 2% objective at an acceptable pace without an adjustment in policy at this meeting.

Finally, a few Fed participants expressed concerns that further monetary accommodation presented a risk to financial stability in certain sectors of the economy or that a reduction in the target range for the federal funds rate at this meeting could be misinterpreted as a negative signal about the state of the economy.

The iShares 20+ Year Treasury Bond ETF (TLT) was lower for the 3rd time in 4 sessions following the pullback to $144.29.

Near-term and upper support at $144.50-$144 was breached but held. A close below the latter opens up risk towards $143-$142.50.

Resistance is at $145.50-$146 with additional hurdles at $147-$147.50 on a close above the latter.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 4th time in 5 session following the intraday push to $262.66.

A close above the $264 level would be a more bullish setup for a possible run at $265-$265.50 and the 50-day moving average.

Current support is at $262-$261.50.

A close below the latter would reopen risk towards $260-$259.50.

RSI is in an uptrend with resistance at 50.

A move above the this level would signal additional strength towards 55-60 with the latter representing the late July peak. Support is at 45-40.

The Energy Select Sector Spider (XLE) was up for the 3rd time in 4 sessions after testing a high of $58.49. Lower resistance at $58.50-$59 was challenged but held.

A close above the $60 level would be a bullish development for continued strength towards $61-$61.50 and the 50-day moving average.

Near-term support is at $58-$57.50.

A close below the latter would be a renewed bearish development with downside risk towards $56-$55.50 and the monthly low at $55.67.

RSI is in an uptrend with resistance at 45-50 and the latter representing the the late July peak. A close above 50 would be a bullish signal for additional strength towards 60-65.

Shaky support is at 40 with risk to 35-30 on a close back below this level.

We are allocating the portfolio as follows:

Long 20% in XLK closed on Wednesday at 80.00
Long 30% in XLP closed on Wednesday at 60.31
Long 30% in XLU closed on Wednesday at 62.08
Short 20% in XLE closed on Wednesday at 58.16

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

XLK – 20DEC $80 Strike Price CALL (Expires December 20, 2019)
XLP – 20DEC $60 Strike Price CALL (Expires December 20, 2019)
XLU – 20DEC $61 Strike Price CALL (Expires December 20, 2019)
XLE – 18OCT $56 Strike Price PUT (Expires October 18, 2019)

All the best,
Roger Scott.