U.S. markets showed continued follow thru following the turnaround off the previous session lows with the major indexes posting strong gains and recovering near-term resistance levels.

The rebound in global bond yields helped sentiment as concerns over slowing economic growth slightly eased.

The gains helped recover roughly half of Monday’s steep losses with the Nasdaq and S&P 500 in positive territory by 35 and 6 points for the week.

The blue-chips and small-caps are within striking distance of 97 and 2 points from turning the week around and heading into Friday’s action as volatility returned to more normal levels.

The Nasdaq surged 2.2% after reaching a late session high of 8,041 while closing back above its 50-day moving average.

Near-term and lower resistance at 8,000-8,050 was cleared and held with the latter representing support from early July.

The Russell 2000 zoomed 2.1% following the second half run to 1,533 and close back above the 200-day moving average.

Prior and lower resistance at 1,525-1,540 was cleared and held with a close above the later and the 50-day moving average signaling additional strength

The S&P 500 soared 1.9% following the close on the session high of 2,938 while regaining the 2,900 level.

Current and lower resistance at 2,925-2,950 and the 50-day moving average was cleared and held with a close above the latter being an ongoing bullish signal.

The Dow jumped 1.4% after testing a midday peak of 26,383 while holding the 26,000 level for the 2nd-straight session.

Fresh and lower support at 26,250-26,500 was cleared and held with a close above the latter and the 50-day moving average signaling additional strength.

Energy and Technology led sector strength after rallying 2.9% and 2.5%, respectively.

Materials, Consumer Discretionary and Financials were all up 1.9%. There was no sector weakness.

Global Economy – European markets closed higher across the board amid stabilizing bond yields and better than expected Chinese export data.

France’s CAC 40 surged 2.3% while Germany’s DAX 30 and the Stoxx 600 rallied 1.7%. The Belgium20 rose 1.4% and UK’s FTSE 100 was up 1.2%.

Asian markets showed strength as tensions between Japan and Korea cooled, with Japan allowing some semiconductor manufacturing material exports into South Korea.

China’s Shanghai added 0.9% and Australia’s S&P/ASX 200 advanced 0.8%. South Korea’s Kospi was up 0.6% and Hong Kong’s Hang Seng was higher by 0.5%.

Japan’s Nikkei gained 0.4%.

China reported U.S. dollar-denominated exports in July rose 3.3% from a year ago while imports fell 5.6% during the same period. Forecasts had July’s exports falling by 2%, and imports to decline by 8.3% over the same period.

China’s trade surplus with the U.S. was $27.97 billion in July, lower than the previous month’s $29.92 billion.

From January to July, China’s trade surplus with the U.S. totaled $168.5 billion with the country’s overall trade surplus last month at $45.06 billion.

Initial Jobless Claims fell 8,000 to 209,000 versus expectations of 215,000. This left the 4-week moving average at 212,250 versus 212,000 the previous week.

Continuing claims dropped 15,000 to 1,684,000 after rising 22,000 to 1,699,000 previously.

Wholesale Trade was flat in June, versus forecasts for a rise of 0.2%, while sales fell 0.3%. The inventory figure is down from the 0.2% gain from the Advance report, and follows a 0.4% increase in May.

The 0.1% gain in sales was revised down to -0.6%. The inventory-sales ratio was steady at 1.36, which is the highest since May 2016.

Market Sentiment – Chicago Fed Charles Evans said inflation alone warrants more stimulus and added that stronger headwinds after the July FOMC and greater risks may also necessitate accommodation. He admits he penciled-in 2 quarter-point cuts this year in his June projections.

Evans went on to say the fundamentals of the U.S. economy remain good and he expects GDP growth of about 2.25% this year, but noted inflation has been weaker than expected and there has been a slowdown in business investment.

The iShares 20+ Year Treasury Bond ETF (TLT) struggled for much of the session before extending its winning streak to 10-straight after trading to late day peak of $140.43.

Near-term and lower resistance at $140.50-$141 held with a close above the latter getting $143-$143.50 back in play.

Backup support at $138-$137.50 was tested but held with the midday bottom tapping $137.98 and the $140 level holding into the closing

Market Analysis – The Russell 3000 Index ($RUA) was up for the 3rd-straight session following the late day run to 1,728. Major and near-term resistance at 1,725 and the 50-day moving average was cleared and held.

Continued closes above this level would be a bullish development for additional momentum towards 1,740-1,750 and the latter representing mid-July support.

Current and rising support is at 1,710-1,700.

A close below the 1,690 level would signal a false breakout with risk towards 1,675-1,660.

RSI is in a uptrend with resistance at 50.

Continued closes above this level would signal additional strength towards 55-60.

Support is at 45-40 with a move below the latter reopening weakness towards 35-30.

The Real Estate Select Sector Spider (XLRE) extended its wining streak to 3-straight sessions after trading to a new 52-week and all-time high of $38.48.

Fresh and lower resistance at $38.50-$38.75 was challenged but held on the double-top breakout. Depending on momentum, there is blue-sky potential towards $39-$39.50 on a close above the latter.

Current support is at $38.25-$38 with the former representing the June and July double-top area.

A close below $37.75 reopens up risk towards $37.50-$37.25 and the 50-day moving average.

RSI remains in an uptrend with resistance at 65.

Continued closes above this level would signaling additional strength towards 70-75 with the latter representing the March peak. Support is at 60-55.

We are allocating the portfolio as follows:

Long 35% in XLF closed on Thursday at 27.24
Long 25% in XLP closed on Thursday at 59.75
Lonng 15% in XLY closed on Thursday at 119.41
Short 25% in XLE closed on Thursday at 59.79

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,
Roger Scott.