U.S. markets started the shortened holiday week with losses after the latest round of tariffs on Chinese goods went into effect over the weekend. U.S. and Chinese officials offered little details on their tentative face-to-face trade talks due to be held this month after the U.S. spurned a request to delay tariffs.

Economic news also weight on trading along with an inverted yield curve.

The major indexes held near-term support levels while volatility cleared 20 but a level that held into the closing bell.

The Russell 2000 tanked 1.5% after kissing a 2nd half low of 1,467.

Prior and upper support at 1,475-1,460 failed to hold with risk towards 1,440-1,425 on a close below the latter.

The Nasdaq gave back 1.1% following the late day pullback to 7,847.

Current and upper support at 7,850-7,800 was breached but held with risk towards 7,750-7,700 and August lows on a close below the latter.

The Dow also dropped 1.1% after trading to an intraday low of 25,978.

Upper support at 26,000-25,800 was breached but held with a close below the latter getting 25,600 and the 200-day moving back in play.

The S&P 500 fell 0.7% after tapping an intraday low of 2,891.

Near-term and upper support at 2,900-2,875 was breached but held into the close with a move below the latter getting 2,825-2,800 back in focus.

Utilities and Real Estate rallied 1.7% and 1.4% to lead sector strength while Consumer Staples edged up 0.6%.

Industrials were the leading sector laggard after tumbling 1.4% while Technology and Financials sank 1.2% and 1%.

Global Economy – European markets settled lower over continued Brexit uncertainty and weaker-than-expected economic news.

France’s CAC 40 fell 0.5% and Germany’s DAX 30 was off 0.4%. The Belgium20 soared 0.3% while the Stoxx 600 and UK’s FTSE 100 slipped 0.2%.

U.K. Prime Minister Boris Johnson said he would call for a snap general election on October 14th if a cross-party group of lawmakers succeed with a bill to block a no-deal Brexit.

Johnson said hopes of a renewed withdrawal agreement had risen, but reiterated that Britain would not delay its exit from the bloc on October 31st.

Meanwhile, U.K. Construction PMI for August slumped to a reading of 40, down from 44.6 in July, and the lowest since March 2009 when the UK economy was in recession.

Asian markets were mixed with the Reserve Bank of Australia keeping interest rates unchanged at a record low of 1%.

Hong Kong’s Hang Seng was lower by 0.4%. South Korea’s Kospi was down 0.2% and Australia’s S&P/ASX 200 dipped 0.1%.

China’s Shanghai gained 0.2% and Japan’s Nikkei edged up 5 points, or 0.02%.

PMI Manufacturing Index slipped to 50.3 in the final August reading, topping estimates of 49.9 and the preliminary print, but down from 50.4 in July.

The report noted declining orders weighed on the index and hit the lowest since May. New export orders fell at the quickest pace in 10 years as companies were reportedly hesitant to hire. However, output increased to 50.8 from 50.5.

ISM Manufacturing Index declined 2.1 points to 49.1 in August, missing expectations of 49.9, and down from 51.2 in July.

The index dipped in contractionary territory for the first time since August 2016, and is the lowest since January 2016.

The employment sub-component fell to 47.4 from 51.7 while the new order index declined to 47.2 from 50.8. The new export orders index tumbled to 43.3 from 48.1 while imports slid to 46 versus 47. Prices paid rose to 46.0 compared to 45.1.

Construction Spending rebounded 0.1% in July following the 0.7% decline in June, but below forecasts for a rise of 0.3%.

Residential construction spending rose 0.6% versus June’s unchanged reading.

Nonresidential spending declined 0.3% versus -1.2%. Private spending slid -0.1% from the prior 0.1% gain, while public spending increased 0.4% from -3.1%.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th time in 5 sessions after trading to an intraday high of $148.67. Lower resistance at $147.50-$148 held for the 3rd-straight session.

A close above $148.50 and last week’s all-time high of $148.90 would be a bullish signal for continued strength towards $149.50-$150.

Support is trying to move up to $147-$146.50 with backup help at $145-$144.50.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) had its 3-session winning streaked snapped following the intraday pullback to $260.03.

Upper support at $260.50-$260 was breached but held. A close below the latter would be an ongoing bearish signal with risk towards $258-$257.50.

Lowered resistance is at $262-$262.50 with more important hurdles at the $265 level and the 50-day moving average.

RSI is in a slight downtrend after failing to hold support at 50 and is signaling additional weakness towards 45-40.

Resistance is at 55-60.

The Real Estate Select Sector Spider (XLRE) extended its wining streak to 4-straight sessions after closing at a new 52-week and all-time high of $39.77.

Fresh and lower resistance at $39.75-$40 was cleared and held on the fresh breakout.

There is blue-sky potential towards $41-$41.50 on a close above the $40 level with the 50/200-day moving averages remaining in solid uptrends.

Rising support is at $39.50-$39.25. A close below $39 reopens risk towards $38.75-$38.50.

RSI remains in an uptrend after clearing resistance at 65.

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

We are allocating the portfolio as follows:

Buying 20% in XLK closed on Tuesday at 78.56
Buying 30% in XLP closed on Tuesday at 61.07
Buying 30% in XLU closed on Tuesday at 63.67
Selling 20% in XLE closed on Tuesday at 57.19


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

XLK – 20DEC $80 Strike Price CALL (Expires December 20, 2019)
XLP – 20DEC $61 Strike Price CALL (Expires December 20, 2019)
XLU17JAN $63 Strike Price CALL (Expires January 17, 2020)
XLE20DEC $57 Strike Price PUT (Expires December 20, 2019)

All the best,
Roger Scott