U.S. markets showed strength throughout Thursday’s action but traded in tight ranges as better-than-expected economic news kept a bid under the major indexes.

Late day weakness dragged down the blue-chips and the small-caps with the overall market basically flat for the session.

Volatility is giving a neutral reading as the market will now focus on ongoing trades talks between the U.S. and China along with the start of Q3 earnings in early October.

The Nasdaq edged up 0.1% following morning run to 8,237.

Prior and lower resistance at 8,200-8,250 was cleared for the 1st time in 4 sessions but a level that held with additional hurdles at 8,300-8,350 and the all-time high at 8,339.

The S&P 500 was up less than a tenth-point after trading in an 18-point range while reaching a 1st half peak of 3,021.

Major resistance at 3,025 was challenged but held with continued closes above this level and the all-time high at 3,027 getting 3,050-3,075 in focus.

The Russell 2000 fell 0.4% despite tapping an intraday high 1,581.

Previous and key resistance from last week at 1,585 was challenged but held with continued closes above the 1,600 level and the July high of 1,599 being a more bullish signal for higher highs.

The Dow nudged down 0.2% after stalling at 27,272 while holding the 27,000 level for the 7th-straight session and trading in a 208-point range. Near-term and lower resistance at 27,250-27,500 was breached but held with the all-time high from July at 27,398.

Healthcare and Utilities showed the most sector strength after jumping 0.5% while Real Estate rose 0.3%.

Industrial and Financials were the leading laggards after giving back 0.5% while Consumer Discretionary and Energy were off 0.3%.

Global Economy – European markets closed higher across the board following the easing in Japan and the United States concerning interest rates.

The Belgium20 and France’s CAC 40 rallied 0.7%. UK’s FTSE 100, the Stoxx 600 and Germany’s DAX 30 rose 0.6%.

Asian markets settled mostly higher with Hong Kong’s Hang Seng bucking the trend after sinking 1.1%. China’s Shanghai, Australia’s S&P/ASX 200 and South Korea’s Kospi advanced 0.5%. Japan’s Nikkei was higher by 0.4%.

Australia’s unemployment rate increased to 5.3% in August.

The trend participation rate increased further to 66.2%, while employment continued to grow above the 20-year annual average.

The Bank of Japan (BoJ) maintained its short-term interest rate target at -0.1%, as expected, and a pledge to guide 10-year government bond yields around 0%.

Initial Jobless Claims edged up 2,000 to 208,000, versus forecasts of 215,000, after dropping 13,000 to 206,000 in the prior week. This lowered the 4-week moving average to 212,250 from 213,000.

Continuing claims declined 13,000 to 1,661,000 after an unchanged 1,674,000 reading the prior week.

Philadelphia Fed Business Outlook Survey fell 4.8 points to 12 in September, a point better than expectations of 11, after dropping 5 points to 16.8 in August.

The employment component climbed to 15.8 from 3.6, with the workweek at 13 from 6.8. New orders slid to 24.8 from 25.8. Prices paid jumped to 33 from 12.8, with prices received at 20.8 from 13.

The 6-month index declined to 20.8 from 32.6, with the future employment index at 30.6 versus 25, and new orders at 35.2 from 44.1, while prices paid checked in at 48.7 from 39, and prices received at 36.3 from 27.8.

The Current Account balance narrowed to -$128.2 billion after hitting -$136.2 billion in Q1. The balance on goods and services was -$163.3 billion in Q2 versus -$156.5 billion in Q1.

The balance on services dipped to $60 billion versus $60.3 billion. The balance on primary income was $67.6 billion versus $56.9 billion. The Q2 current account deficit is 2.4% of GDP, versus 2.6% for Q1.

Analysts expect an annual current account deficit of -$528 billion, which would be a new expansion high, versus the prior expansion-high of $491 billion in 2018, but still well below the $806 billion record deficit back in 2006.

Existing Home Sales rose another 1.3% to 5,490,000 in August, topping expectations of 5,380,000, after rebounding 2.5% to 5,420,000 in July. Single family sales increased 1.2% following the prior 2.8% jump, while condo/coop sales climbed 1.7% from an unchanged reading previously.

The months’ supply of homes slid to 4.1 from 4.2. The median price fell to $278,200 after falling to $280,400 in July, but is still at a 4.7% year-over-year clip.

Leading Indicators Index for August was unchanged at 112.1, matching forecasts, after rising 0.4% to that level in July.

Five of the 10 components made positive contributions, led by building permits (0.22%) and the leading credit index (0.11%).

On the negative side, ISM new orders (-0.18%) and stock prices (-0.18%) paced the slide. Nondefense capital goods orders were unchanged.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th-straight session after testing an intraday high of $140.82. Prior and lower resistance at $140.50-$141 was cleared but held with additional hurdles at $141.50-$142.

Current and rising support is at $140-$139.50 followed by $139 and the 50-day moving average.

RSI remains in a slight uptrend and is approaching resistance at 50.

Continued closes above this level would be a bullish signal for additional strength towards 55-60. Support is at 45-40.

Market Analysis – The Russell 2000 ETF (IWM) fell for the 3rd-straight session despite trading to an intraday high of $157.82. Lower resistance at $157.50-$158 was cleared but held.

Continued closes above the $159 level would be a more bullish signal for a possible retest towards $160-$160.50 and prior peaks from early May.

Current and near-term support is at $155.50-$155.

A close below the latter would be a slightly bearish signal with risk towards $154-$153.50.

RSI is back in a downtrend after failing resistance at 65.

A close above this level would be a bullish signal for a run towards 70-75 and February highs. Support is at 55-50.

The Materials Select Sector (XLB) extended its winning streak to 3-straight sessions after tapping a midday high of $59.11. Lower resistance at $59-$59.25 was tripped but held.

Continued closes above the $59.50 level and late July resistance would be an ongoing bullish signal with upside potential towards $60.50-$61 and the 52-week peak at $61.16.

Near-term support is at $58.75-$58.50 with backup help at $58.25-$58.

A close below the latter reopens additional downside risk towards $57.50 and the 50-day moving average.

RSI is flatlining with resistance at 65.

A close above this level would signal additional strength towards 70-75 and July/ April highs.

Support is at 60-55 with risk to 50 and the monthly lows on a move below the latter.

We are allocating the portfolio as follows:

Long 30% in XLF closed on Thursday at 28.37
Long 20% in XLK closed on Thursday at 81.46
Long 30% in XLU closed on Thursday at 64.05
Short 20% in XLE closed on Thursday at 61.71

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

XLF – 20DEC $29 Strike Price CALL (Expires December 20, 2019)
XLK – 17JAN $85 Strike Price CALL (Expires January 17, 2020)
XLU – 17JAN $63 Strike Price CALL (Expires January 17, 2020)
XLE – 20DEC $57 Strike Price PUT (Expires December 20, 2019)

All the best,
Roger Scott.