U.S. markets rallied on Tuesday following fresh trade optimism with China and ahead of the FOMC’s latest decision concerning interest rates on Wednesday.

President Trump tweeted that he had a very good conversation with President Xi of China with an extended meeting planned for next week at the G-20 in Japan.

The higher highs cleared near-term and major resistance levels with volatility falling below major support levels.

The action looks bullish for a continued rally towards all-time highs, depending on Fed speak or what happens with interest rates, with any disappointment news setting the stage for a nasty selloff.

The Nasdaq soared 1.4% following the spike to 8,005 shortly after the opening bell.

Prior and upper resistance at 7,950-8,000 was cleared but held on the close back above the former and the 50-day moving average.

The Dow was also up 1.4% after testing a first half high of 26,527.

Current and upper resistance at 26,250-26,500 was challenged but held on the close above the former and the index less than 2% away from all-time highs.

The Russell 2000 surged 1.1% following the intraday run to 1,560.

Upper resistance from mid-May at 1,545-1,560 was tapped but held with the close above the 200/50-day moving averages getting 1,575-1,590 in play.

The S&P 500 soared 1% after reaching a morning peak of 2,930 while closing above the 2,900 level for the first time since early May.

Fresh and lower resistance at 2,925-2,950 was tripped but held with the all-time high at 2,954.

Industrials and Technology were sector leaders after jumping 1.9% and 1.8%, respectively.

Energy and Financials gained 1.4% and 1.3%.

Consumer Staples was the leading sector laggard after falling 0.5% while Utilities and Real Estate were lower by 0.4% and 0.3%, respectively.

Global Economy – European markets posted strong gains following dovish comments from Mario Draghi, along with softer Eurozone data, boosting expectations that the ECB will deliver easier monetary policy soon.

France’s CAC 40 sky rocketed 2.2% and Germany’s DAX 30 zoomed 2%.

The Belgium20 rallied 1.8% snd the Stoxx 600 soared 1.7%. UK’s FTSE 100 climbed 1.2%.

The European Union’s surplus with the U.S. grew to 48.2 billion euros ($54 billion) in the January-April 2019 period from 46 billion euros in the same period of 2018.

With China, the EU’s trade deficit expanded to 62 billion from 57.2 billion euros.

Asian markets were mostly higher ahead of central banks meetings in Japan and Indonesia.

Hong Kong’s Hang Seng was up 1% and Australia’s S&P/ASX 200 advanced 0.6%. South Korea’s Kospi added 0.4% and China’s Shanghai edged up 0.1%. Japan’s Nikkei bucked the trend after giving back 0.7%.

Housing Starts fell 0.9% to 1,269,000 in May, topping forecasts of 1,240,000, but below April’s print of 1,281,000.

Single family starts declined 6.4% versus the prior 5.2% gain while multifamily starts were up 10.9% after jumping 10.7% in April.

Building permits rose 0.3% to 1,294,000 following the prior 0.2% gain to 1,290,000 million.

Overall, the big revisions to prior months overshadow the May decline and leave housing starts on better-than-expected footing overall.

Chain store sales climbed 2.7% in the week ending June 15th, and follows the 1.4% rebound the prior week. The 5.1% cumulative advance nearly reversed the 5.4% drop in the June 1st period.

The 12-month pace accelerated to a 3.1% year-over-year clip versus 1.8% previously. Strength in dollar stores led the gains on the year-over-year basis, with support from discounters, wholesale clubs, building supply, and non-apparel specialty stores.

Redbook Store Sales up 5.4% for the year in the week ending June 15th.

Market Sentiment- The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 6th-straight session after reaching a fresh 52-week and intraday peak of $132.86.

New and lower resistance at $132.50-$133 was cleared but held with additional hurdles at $134.50-$135.

Rising support is at $132-$131.50 with a close below $131 signaling a possible near-term top.

RSI remains in a solid uptrend but is signaling slightly overbought levels after clearing resistance at 70.

There is a chance for a run towards 75-80 on continued strength with the latter representing the late May high. Support is at 65-60.

Market Analysis – The Russell 3000 Index ($RUA) snapped out of a 6-session grading range after tapping an intraday high of 1,724. Fresh and lower resistance from mid-April at 1,725-1,750 was challenged but held with the late April and all-time peak at 1,743.

Rising support is at 1,700-1,675.

A close below the latter and the 50-day moving average would signal a false breakout with further risk towards 1,650-1,625 and the 200-day moving average.

RSI is back in an uptrend with fresh hurdles at 65-70 and the latter representing the high throughout April.

Support is at 60-55 with a close below 50 being a bearish development and signaling additional weakness.

The Real Estate Select Sector Spider (XLRE) had its 5-session winning streak snapped despite testing a new all-time intraday high of $38.49.

Blue-sky and lower resistance at $38.50-$39 was nearly cleared with upside potential towards $39.50-$40 on renewed momentum.

Rising support is at $37.75-$37.25. A close back below the latter opens up risk towards $37-$36.50 and the 50-day moving average along with signaling a near-term top.

RSI is in a slight downtrend after failing resistance at 70.

Continued closes above this level would signal additional strength towards the 75 area and early March highs. Support is at 65-60 with a close below the latter being a bearish development for additional weakness.

We are allocating the portfolio as follows:

30% in CERN closed on Tuesday at 70.67
30% in HAS closed on Tuesday at 107.88
30% in TTWO closed on Tuesday at 111.02
10% in TMF closed on Tuesday at 24.63

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

CERN20SEP $72.5 Strike Price CALL
HAS 18OCT $110 Strike Price CALL
TTWO 20SEP $115 Strike Price CALL
TMF15NOV $25 Strike Price CALL

All the best,
Roger Scott.