U.S. markets settled mostly higher following new trade developments that China would ease foreign financial ownership restrictions in 2020, which is a year earlier than anticipated.
While this was a relatively small concession, it was another positive sign the relationship between the U.S. and China continues to improve.
Volumes was light as traders were slightly hesitant ahead of Wednesday’s shortened session, Thursday’s holiday, and Friday’s monthly job report.
Volatility continues to slide after closing below another key level of support.
The S&P 500 rose 0.3% after trading to a high of 2,973 ahead of the closing bell. Current and lower resistance at 2,975-3,000 held on the 2nd-straight record close for the index.
The Dow was also up 0.3% following the late day run to 26,787 and 1-point close below this level.
Near-term and lower resistance at 26,750-27,000 was cleared and held with the all-time record peak at 26,951.
The Nasdaq extended its winning streak to 5-straight sessions after adding 0.2% while closing at its session high of 8,109.
Resistance remains at 8,150-8,200 with the record high at 8,176.
The Russell 2000 bucked the trend after falling 0.6% while tapping a late day low of 1,552.
Fresh and key support at 1,550 held with a close below this level getting 1,545-1,530 and the 50/200-day moving averages back in play.
Real Estate paced sector leaders after jumping 1.8% while Utilities soared 1.2%.
Energy was the weakest sector after sinking 1.8%. Financials fell 0.3% while Materials and Industrials were down 0.2%.
Global Economy – European markets closed higher despite fresh U.S. tariffs threats on $4 billion of additional EU goods amid a long-running dispute over aircraft subsidies.
UK’s FTSE 100 gained 0.8% and Belgium20 was higher by 0.5%.
The Stoxx 600 added 0.4% and France’s CAC 40 climbed 0.2%. Germany’s DAX 30 was up 5 points, or 0.04%.
UK’s IHS Markit construction purchasing managers’ index sank to 43.1 in June, down from 48.9 in May, and the lowest reading since April 2009. Expectations were for a print of 49.3.
Asian markets were mixed after Australia cut its cash rate to a fresh all-time low.
Hong Kong’s Hang Seng rallied 1.2% while Australia’s S&P/ASX 200 and Japan’s Nikkei edged up 0.1%. South Korea’s Kospi fell 0.4% and China’s Shanghai slipped a point, or 0.3%.
The Reserve Bank of Australia announced it was cutting its cash rate by 25 basis points to 1%, the 2nd-straight month of easing after it slashed rates in June.
U.S. chain store sales fell 0.6%, following gains of 2.7% the prior week. The 12-month sales clip slowed to 1.9% year-over-year versus 2.8%.
Redbook Store Sales were up 5.5% for the year in the week ending June 29th.
Market Sentiment – Cleveland Fed President Loretta Mester said it’s too soon to make a decision on policy.
However, she said if she sees a few weak job reports, further declines in manufacturing activity, indicators pointing to weaker business investment and consumption, and declines in readings of longer-term inflation expectations.
She would view this as evidence that the base case is shifting to the weak-growth scenario.
Mester went on to say the markets have priced in rate cuts and she doesn’t want to discount that signal, but she cautioned, markets are not always right.
She added cutting rates at this juncture could reinforce negative sentiment about a deterioration in the outlook even if this is not the baseline view.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after trading to a high of $133.39.
Prior and lower resistance at $133-$133.50 was cleared and held with a close above the latter getting multi-year resistance at $134.50-$135 in play.
New support is at $132.50-$132 with backup help $131.50-$131.
Market Analysis- The Spider S&P 500 ETF (SPY) extended its winning streak to 4-straight sessions after trading to a high of $296.15. Fresh and lower resistance at $296-$296.50 held.
Continued closes above the latter and Monday’s all-time high of $296.92 would be a bullish signal for a blue-sky breakout towards $297.50-$300, depending on momentum.
Current support is at $294.50-$294. A close below $293.50 would signal additional weakness towards $292.50-$292.
RSI is showing signs of leveling out with resistance at 70.
A move above this level would signal additional strength towards 75 and the April high. Support is at 65-60 with the latter holding throughout much of June.
A close below 60 would be a bearish signal for additional weakness towards 55-50.
Communication Services (XLC) was also up for the 4th-straight session after trading to a high of $50.11. Near-term and lower resistance at $50-$50.50 was cleared and held.
A close back above the latter would be a bullish signal for a run towards $51-$51.50 with the late April top at $51.34.
Fresh support is at $49.50. A close below this level would signal additional weakness towards $49-$48.50 and the 50-day moving average.
RSI is in an uptrend with resistance at 65.
A move above this level would be an ongoing bullish development for additional strength towards 70 and mid-April resistance.
Support is at 60 with a move below this level getting 55-50 back in focus.
We are allocating the portfolio as follows:
30% in AMD closed on Tuesday at 31.25
30% in CDNS closed on Tuesday at 74.02
30% in JD closed on Tuesday at 31.45
10% in TMF closed on Tuesday at 25.33
Option Traders – the following (regular monthly) options meet our criteria:
AMD – 18OCT $32 Strike Price CALL (Expires October 18, 2019)
CDNS – 20DEC $75 Strike Price CALL (Expires December 20, 2019)
JD – 20SEP $32 Strike Price CALL (Expires September 20, 2019)
TMF – 15NOV $25 Strike Price CALL (Expires November 15, 2019)
All the best,
Roger Scott.