U.S. markets were tentative for the 2nd-straight session with the major indexes closing mostly lower on Tuesday and ahead of the Fed’s decision on interest rates on Wednesday.

Expectations were for modest headway in the U.S./ China trade talks this week, but fresh chatter of President Trump’s views have constrained hopes for even incremental progress.

The President criticized China for not buying U.S. agriculture products while saying China continues to rip off the U.S. and has not delivered on promises to purchase U.S. agriculture goods.

Volatility settled slightly higher but has been giving a neutral reading for 6-straight sessions while confirming the recent whipsaw action.

The S&P 500 was off 0.3% after testimg a morning low just south of 3,001.

Current and upper support at 3,000-2,975 held by nearly a point with a move below the latter and the mid-month low of 2,973 being a sell signal.

The Nasdaq slipped 0.2% following the opening pullback to 8,228. Current and upper support at 8,250-8,200 was breached for the 5th time in 6 sessions but a level held into the closing bell.

The Dow dipped 0.1% following the backtest to 27,069 shortly after the opening bell. The blue-chips have been in a 13-session trading range with more defined and upper support at 27,150-27,000 getting breached but holding. A close below 26,900 and the mid-month low of 26,916 would be a very bearish development for continued weakness.

The Russell 2000 recovered from a rocky open and finished the session 1.1% higher after rebounding to a peak of 1,585 ahead of the closing bell. Prior and upper resistance at 1,565-1,580 was cleared and held with the more important hurdle at the 1,600 level.

Energy led sector strength after jumping 1.1% while Real Estate and Materials were rose 1% and 0.7%, respectively.

Utilities and Consumer Discretionary fell 0.8% and 0.7% and were the leading laggards.

Global Economy – European markets were sharply lower following a number of high profile earnings misses and renewed U.S./ China trade uncertainty.

Germany’s DAX 30 tumbled 2.2% and the Belgium20 dropped 1.7%. France’s CAC 40 sank 1.6% and the Stoxx 600 tanked 1.5%. UK’s FTSE 100 fell 0.5%.

Asian markets saw modest gains after the BOJ kept monetary policy steady and on the start of face-to-face meetings between U.S. and Chinese officials concerning trade for the first time since May.

South Korea’s Kospi was up 0.5% while Japan’s Nikkei and China’s Shanghai gained 0.4%. Australia’s S&P/ASX 200 climbed 0.3% and Hong Kong’s Hang Seng was higher by 0.1%.

The Bank of Japan maintained its short-term interest rate target at -0.1% and its pledge to guide 10-year government bond yields around 0%.

The BOJ, however, said that it will not hesitate to take additional easing measures if the economy loses momentum toward achieving the target inflation rate of 2%.

The Japanese central bank also said it intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020.

U.S. chain store sales rebounded 0.6%, after falling 0.6% in the prior week. The 12-month pace accelerated to 2.3% year-over-year versus 1.7%.

The report noted tough comps to the 2018 back-to-school spending period, with the combined July-August rate the strongest since 2010.

Personal Income rose 0.4% in June, with spending up 0.3%, both matching forecasts. Wages and salaries climbed 0.5% following the prior 0.2% gain, with compensation 0.5% higher from 0.2% previously.

Disposable income increased 0.4% versus 0.3%.

The savings rate soared to an 8.1% gain versus 8%. For the PCE chain price data, and the Fed’s focus, the headline index edged up 0.1%, with the core rate up 0.2%, and the same as in May for both. On a 12-month basis, the headline deflator was steady at 1.4% year-over-year, with the core rate rising to a 1.6% pace versus 1.5%.

S&P Corelogic Case-Shiller 20-City home price index rose 0.59% to 216.94 in May after climbing 0.81% to 215.66 in April. T

he annual clip showed a slowing to 2.39% year-over-year versus 2.53%, and represented the 14th-straight month of growth slippage. The 10-City composite index was up 0.48% to 230.12 versus the prior 0.76% increase to 229.03.

The 12-month clip slipped to 2.16% year-over-year versus 2.26%.

Nineteen of the 20 cities covered posted annual gains, led by Las Vegas (6.42%), with Seattle registering a decline (-1.18%).

Consumer Confidence surged 11.4 points to 135.7 in July, much better than expectations of 125, after falling 7 points to 124.3 in June.

The present situation index climbed to 170.9 versus 164.3 while the expectations index jumped to 112.2 from 97.6. The labor differential bounced to 33.4 from 28.2. The 12-month inflation gauge slipped back to 4.7% after spiking to 5.1% in June.

Pending Home Sales Index increased another 2.8% to 108.3 in June after rebounding 1.1% to 105.4 in May. The contraction in the 12-month pace slowed to -0.6% year-over-year versus -0.8%.

Sales increased in all four regions, with the West up 5.4% on the month, followed by a 3.3% increase in the Midwest, and a 2.7% gain in the Northeast, while the South edged up 1.3%.

Redbook Store Sales were up 4.5% for the year in the week ending July 27th.

Market Sentiment – The FOMC began its 2-day meeting with a 25 basis point easing priced in, but the focus will be on Fed’s guidance in its policy statement and Fed Chairman Powell’s press conference remarks.

Wall Street suspects there is some remorse on the FOMC’s part for boxing itself in with this rate cut as U.S. growth has proven wrong the dire forecasts of a sharp slowdown and possible recession.

Powell will have to parse his words very carefully as the markets are ripe for disappointment, having priced in over 50 basis points in easing into 2020. The talking heads are expecting Powell to reiterate policy is data dependent, while noting the increase in uncertainties over the outlook.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after testing an intraday high of $132.10. Fresh and lower resistance at $132-$132.50 was cleared but held. A close above the $133 level would be a more bullish signal for higher highs.

Near-term and rising support is at $131.50-$131. A close below the latter and and the 50-day moving average would be a slightly bearish development.

Market Analysis – The Russell 3000 Index ($RUA) was down for the 2nd-straight session following the pullback to 1,763. Near-term and upper support at 1,765-1,745 was breached but held.

A close below the 1,740 level and support from the start of the month would be a bearish development with risk towards 1,720 and the 50-day moving average.

Major and near-term resistance is at 1,780. Continued closes above this level would be a bullish development for a possible run towards 1,800.

RSI is in a downtrend with support at 60-55 and the latter holding since mid-June. A close below 50 would being a cautious signal for additional weakness towards 45-40 and the latter representing mid-May support. Resistance is at 65-70.

The Utilities Select Spider (XLU) had its 2-session winning streak snapped after testing an intraday low of $59.53. Near-term and upper support at $59.75-$59.50 and the 50-day moving average was breached but held. A close below $59.50 opens up risk towards $59-$58.50

Resistance is at $60.25-$60.50.

A close above the latter would be a renewed bullish signal for a retest towards $61-$61.50 with the June all-time peak at $61.38.

RSI is in a downtrend with support at 45-40.

A move back below the latter would signal additional weakness towards 35-30 and December 2018 lows. Resistance is at 50.

We are holding the following positions:

1. CORE
2. HZNP

3. LZB
4. PAYS
5. RDUS
6. UPLD 

Options Traders – the following regular MONTHLY options meet our criteria:

CORE – 15NOV Expiration $40 Strike Price Call

HZNP – 15NOV Expiration $26 Strike Price Call

LZB – 18OCT Expiration $35 Strike Price Call

PAYS – 20SEP Expiration $15 Strike Price Call

RDUS – 18OCT Expiration $22.5 Strike Price Call

UPLD – 18OCT Expiration $50 Strike Price Call

All the best,
Roger Scott.