U.S. markets showed strength throughout Monday’s session after Treasury Secretary Steve Mnuchin denied a report over the weekend that the Trump administration was looking to restrict China’s access to U.S. markets.

This was the catalyst for Friday’s pullback that included chatter of delisting China stocks on U.S. indexes.

White House adviser Peter Navarro also reiterated Mnuchin’s message ahead of the open with the gains wrapping up a positive month for the market.

Volatility eased while closing below major support levels and giving an indication upcoming 3Q earnings will play more of a role in market direction than politics.

The Nasdaq jumped 0.8% after trading to a midday high of 8,012.

Prior and lower support at 8,000-8,050 was cleared but held by less than a point. A close above the latter and the 50-day moving average would be a more bullish signal for a retest towards 8,100-8,150.

The S&P 500 climbed 0.5% following the intraday run to 2,983.

Lower resistance at 2,975-3,000 was cleared and held by over a point with continued closes above the latter keeping 3,025 and fresh all-time highs in play.

The Dow added 0.4% after reaching an intraday peak of 26,998. Near-term and lower resistance at 27,000-27,250 held with a move above the latter getting the July all-time high at 27,398 in focus.

The Russell 2000 nudged up 0.2% following the 2nd half trip to 1,530. Prior and lower resistance at 1,525-1,540 was cleared but held by a couple points with continued closes above 1,550 signaling a near-term bottom.

For the month of September, the Dow jumped 2%, the S&P 500 soared 1.7% and the Nasdaq added 0.5%. For the quarter, the Dow and the S&P 500 both rallied 1.2%, while the Nasdaq fell 0.1%.

The Russell 2000 was up 1.9% for September but lost 2.2% for the 3rd quarter.

Technology led sector strength after rallying 1.1% while Consumer Discretionary, Healthcare and Materials rose 0.9%. Energy and Financials were the only sector laggards after falling 0.7% and 0.2%, respectively.

Global Economy – European markets closed mostly higher despite German annual inflation unexpectedly slowing for the 3rd-consecutive month.

France’s CAC 40 was higher by 0.7% while the Stoxx 600 and Germany’s DAX 30 advanced 0.4%. The Belgium20 edged up 0.1%. UK’s FTSE 100 slipped 0.2%.

German September consumer prices rose by 0.9% year-on-year, the lowest since November 2016, and missing forecasts for a reading of 1%. For the month, inflation prices fell by 0.1%, after a decrease of 0.1% in the previous month, with expectations for an unchanged reading.

Asian markets settled on both sides of the ledger following mixed economic news out of China and Japan.

South Korea’s Kospi gained 0.6% and Hong Kong’s Hang Seng was up 0.5%. China’s Shanghai sank 0.9%, Japan’s Nikkei slid 0.6% and Australia’s S&P/ASX 200 fell 0.4%.

China’s Caixin PMI unexpectedly jumped to 51.4 in the September reading, from 50.4 in August, and topping expectations of 50.2.

China’s official PMI also nudged higher, although at 49.8 remained below the 50 point no change mark. Meanwhile, China’s official non-manufacturing PMI fell back to 53.7 from 53.8.

Japan’s industrial output fell 1.2% in August, versus forecasts for a 0.5% decline, and almost completely reversing July’s 1.3% increase.

Chicago Fed National Activity Index declined 3.3 points to 47.1, weaker than expectations of 50.4, and follows the 6 bounce to 50.4 in August. It also represented the 3rd time this year the monthly index has dropped below 50. The 3-month moving average slid to 47.3 versus 48.2.

Dallas Fed Manufacturing Survey dipped 1.2 points to 1.5 in September, topping forecasts for a print of 1. The employment component climbed to 18.8, more than tripling the August’s 5.5 reading and is the best since last October. The workweek rose to 5.7 from 4, though wages fell to 17.4 from 27.3.

New orders dipped to 7.1 versus 9.3.

The prices paid index jumped to 20.3 from 9.8, with prices received at 1 from -2.6. The 6-month general activity index slumped to -6.8 versus 1.4, with the future employment gauge at 15.9 from 22.9.

New orders were at 23.9 from 23.7, while prices paid rose to 20 from 11.8, and prices received at 11.5 from 9.1.

Market Sentiment – Chicago Fed Charles Evans said that he was “open-minded” when asked about the right level for interest rates in the U.S., but suggested more cuts could be needed if economic headwinds increase.

Evans still upbeat on the fundamentals for the U.S. despite headwinds that the economy is facing by saying the Fed has reduced the federal funds target by 50 basis points and that he thinks that has helped move them into an accommodative stance.

However, he added that could be a moving target if headwinds are increasing and the Fed has to do more.

The iShares 20+ Year Treasury Bond ETF (TLT) has been in a 6-session trading range with Monday’s low tapping $141.84 shortly after the open. Upper support at $142-$141.50 was breached but held.

A close below the latter would be a slightly bearish signal with risk towards $141-$140.50 and the 50-day moving average.

Lower resistance at $143-$143.50 was cleared and held on the late day trip to $143.09.

Continued closes above the $144 level would be a more bullish signal for a retests towards $145.50-$146.

Market Analysis – The Invesco QQQ Trust (QQQ) snapped a 2-session slide after trading to an intraday high $189.11. Near-term and lower resistance at $189.50-$190 held with the close back above the 50-day moving average being a slightly bullish signal.

Continued closes above $192 would be a more bullish development for higher highs with upside potential towards $193.50-$194.

Current support is at $188-$187.50.

A move below the latter would be a slightly bearish signal for a further pullback towards $186.50-$186.

RSI is back in an uptrend with resistance at 50.

There is upside potential towards 55-60 on a close above this level with the latter representing the monthly peak.

Support is at 45-40.

The Consumer Staples Select Spiders (XLP) was up for the 5th time in 6 sessions following the intraday push to $61.69 and fresh all-time high.

Prior and lower resistance from earlier this month at $61.50-$62 was cleared but held. A close above the latter would be an ongoing bullish signal with blue-sky territory towards $63-$63.50.

Current and rising support at $61.25-$60.75.

A close below the $60.50 level would be a slightly bearish signal with downside risk towards $60 and the 50-day moving average.

RSI remains in an uptrend from mid-month after clearing resistance at 60.

Continued closes above this level would signal additional strength towards 65-70 and the latter representing the July high.

Support is at 55-50 with the latter level holding since mid-August.

We are holding the following positions:

CELG: +25% Allocation | $90.14 Protective Stop Loss | $110.71 Profit Objective
EXPE: +25% Allocation | $122.65 Protective Stop Loss | $148.47 Profit Objective
KLAC: +25% Allocation | $146.74 Protective Stop Loss | $178.60 Profit Objective
NXPI: +25% Allocation | $99.16 Protective Stop Loss | $120.50 Profit Objective

Option Traders – the following (regular monthly) options meet our criteria:

CELG – 17JAN $100 Strike Price CALL (Expires January 17, 2020)
EXPE 17JAN $140 Strike Price CALL (Expires January 17, 2020)
KLAC 20DEC $160 Strike Price CALL (Expires December 20, 2019)
NXPI 17JAN $110 Strike Price CALL (Expires January 17, 2020)

All the best,
Roger Scott.