U.S. markets settled higher to end the week and for the first time in 3 Friday sessions but closed lower for the 3rd-straight week as the continued gains weren’t enough to offset the midweek selloff.

Momentum held throughout the session after President Trump said a call is planned with China’s President Xi, soon.

The steepening in the U.S. yield curve was likely a more important catalyst the major indexes showed strength as the resurgence in U.S./ China trade talk hopes may have been of less conviction.

Volatility also simmered for h 2nd-straight session after trading and closing below key levels of support.

The Russell 2000 zoomed 2.2% while closing a point off its session high of 1,494.

Prior and lower resistance at 1,485-1,500 was cleared and held with more important hurdles at 1,510-1,525 and the 200-day moving average.

The Nasdaq jumped 1.7% after snapping a 2-session slide and trading to a high of 7,907.

Near-term and upper resistance at 7,850-7,900 was cleared but held with continued closes above 7,950 getting 8,000-8,050 and the 50-day moving average in focus.

The S&P 500 soared 1.4% to extend its winning streak to 2-straight following the late day run to 2,893.

Current and lower resistance at 2,875-2,900 was cleared and held with continued closes above the latter getting 2,925-2,950 and the 50-day moving average back in play.

The Dow was up for the 3rd time in 4 sessions after rallying 1.2% and tapping a high of 25,886.

Near-term and lower resistance at 25,600-25,800 and the 200-day moving average was reclaimed with continued closes above the 26,000 level being a more bullish signal selling pressure has abated.

For the week, the Dow was lower by 1.5% and the Russell 2000 was down 1.3%.

The S&P 500 fell 1% and the Nasdaq was off 0.8%.

Industrials and Technology led sector strength on Friday after rising 1.9% while Financials and Materials advanced 1.8%. There was no sector weakness.

The best performing and only sector higher for the week was Utilities (0.4%). Energy (-5.8%) was the leading sector laggard, followed by Materials (-4.4%), Financials and Industrials (-4.2%), and Communication Services (-4.1%).

With Q2 earnings season winding down, results from 23 of the 38 retailers in the S&P 500 companies have been announced.

Total earnings for these 23 retailers are up 4.9% from the same period last year on 10.1% higher revenues, with 60.9% beating EPS estimates and 52.2% topping revenue estimates.

Global Economy – European markets finished higher on hopes of further easing measures after the ECB’s Rehn not just promoted a impactful and significant package, but also left the option of equity purchases under the QE program on the table.

The Belgium20 surged 1.6% and Germany’s DAX 30 jumped 1.3%. France’s CAC 40 and the Stoxx 600 rose 1.2% while UK’s FTSE 100 advanced 0.7%.

Asian markets settled mixed after China’s state planner said Beijing will roll out a plan to boost disposable income.

Hong Kong’s Hang Seng rallied 0.9% and China’s Shanghai added 0.3%.
South Korea’s Kospi fell 0.6% and Australia’s S&P/ASX 200 slipped 2 points, or 0.04%.

Japan’s Nikkei nudged up 0.1%.

Housing Starts dropped 4% to 1,191,000 in July, versus estimates for 1,260,000, and follows June’s 1,241,000 reading. While the was a disappoint, all of the weakness was in the volatile multifamily sector which dropped another 16.2% after falling 16.4% in June.

Meanwhile, starts are up 0.6% year-over-year, much slower than the 5.2% pace from June. Single family starts rose 1.3% after June’s 6.3% bounce. More encouraging was the 8.4% rebound in building permits to 1,336,000 following the 5.2% drop to 1,232,000, previously.

The decline in mortgage rates should help give a boost to the housing sector the rest of the year.

Regionally, starts declined in the Northeast (-13.8%), the Midwest (-6.2%), and the South (-4.3%), while rising in the West (8.1%).

Consumer Sentiment for August dropped 6.3 points to 92.1 in the preliminary reading, after inching up 0.2 ticks to 98.4 in July.

Expectations for a print of 97.5. The current conditions component fell to 107.4 versus 110.7 last month, and the expectations index slid to 82.3 from 90.5. The 12-month inflation gauge picked up to 2.7% versus 2.6% previously, and the 5-year index edged up to 2.6% versus 2.5%.

Baker-Hughes reported the U.S. rig count was up 1 rig from last week to 935, with oil rigs rising 6 to 770, gas rigs slipping 4 to 165, and miscellaneous rigs down 1 to 0.

The U.S. Rig Count is down 122 rigs from last year’s count of 1,057, with oil rigs down 99, gas rigs off 21, and miscellaneous rigs dropping 2 to 0. The U.S. Offshore Rig Count is up 2 rigs to 27 and up 6 rigs year-over-year.

Atlanta Fed’s GDPNow cast projects a 2.23% growth rate for Q3, a little firmer than the prior forecast of 2.16%.

The upward revision resulted from the housing starts report which boosted the nowcast of Q3 real residential investment growth to 0.7% from -1.2%.

Analysts’re estimating a 2.1% clip for Q3 after a slight trimming in Q2 growth to 1.9% from the 2.1% from the Advance report.

Quarterly Services Survey reported revenue was up 1.3% quarter-over-quarter to $4.05 billion and is up 5.4% year-over-year.

Market Sentiment – Minneapolis Fed Neel Kashkari said there’s good news and bad news on the economy as he pushed back against President Trump’s assertion that the Fed is holding back the economy.

However, he continued to argue for more stimulus after saying analysts probably need to go ahead and pull back on interest rates to provide more support to the economy.

Kashkari said trade tensions are making businesses cautious and the inversion of the U.S. yield curve that sent markets plummeting is an indicator that people are nervous.

At the same time, he added the jobs market is strong, and so is consumer spending although he noted a few businesses he has talked to have blamed the Fed for the slowdown.

The iShares 20+ Year Treasury Bond ETF (TLT) lost some steam following the backtest to $144.84. Current and upper support at $145-$144.50 was breached but held.

A close below the latter could lead to a retest towards $143-$142.50.

Near-term resistance is at $146-$146.50 with last week’s all-time peak at $148.60.

RSI is back in downtrend with support at 75-70 and still signaling slightly overbought levels.

A close below the latter would signal additional weakness towards 65-60 and late June levels. Resistance is at 80-85.

Market Analysis – The S&P 400 Mid Cap Index ($MID) rebounded to snap a 2-session losing streak after trading to a high of 1,875.

Prior and lower resistance at 1,875-1,900 was breached but with the close back above the 200-day moving average being a slightly bullish development.

Continued closes above the 1,900 level would signal near-term selling pressure has abated and setup a retest towards 1,925 and the 50-day moving average.

Current support at 1,850-1,835. A close below the latter would be a renewed bearish signal with risk towards the 1,825-1,800 and late May lows.

RSI is back in an uptrend with resistance at 45-50. A move above the latter would signal additional strength towards 55-60 and prior highs throughout July.

Support is at 40 with risk towards 35-30 and the latter representing this month’s low on a close below this level.

The Spiders S&P Homebuilders ETF (XHB) showed strength after testing an intraday high of $40.66. Prior and lower resistance at $40.50-$41 was cleared and held with more important hurdles at $41.50 and the 50-day moving average.

Current support is at $40.25-$39.75. A close below the latter and the monthly low at $39.73 would be a renewed bearish signal with risk towards $39.50-$39.

RSI is back in a slight uptrend with resistance is at 50 and a level that has been holding since mid-July.

A move above 50 would signal additional strength towards 55-60. Support is at 40 and the monthly low.

The percentage of S&P 500 stocks trading above the 200-day moving average closed at 54.45% on Friday with the session high reaching 55.24%.
Lower resistance at 55%-57.5% was cleared and held. A move above the latter would signal additional strength towards 60%-62.5% with the previous week’s peak at 62.37%.

Support is at 52.5%-50% with the monthly low at 51.08%. A close below the latter would be a renewed bearish signal with risk towards the 47.5% area and late May lows.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 36.23%, with the session peak reaching 37.62%. Lower resistance at 37.5%-40% held.

A move above the latter would signal additional strength towards 42.5%-45% with breakout potential towards 50% and prior support from the start of the month.

Current support is at 35%-32.5%.

A close below the latter would be a bearish signal for additional weakness towards 30%-27.5% with last week’s low reaching 25.14%.

We are allocating the portfolio as follows:

30% in FISV closed on Friday at 107.26
30% in SBUX closed on Friday at 96.52
30% in TTWO closed on Friday at 127.20
10% in TMF closed on Friday at 33.08

For maximum liquidity, we will liquidate (SELL TO CLOSE Options contracts) and initiate any new positions (BUY TO OPEN Options contracts) within the last 20 minutes of the trading session. We will update you after the close in the Members Area Daily Update.

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

FISV 20DEC $110 Strike Price CALL (Expires December 20, 2019)
SBUX 18OCT $100 Strike Price CALL (Expires October 18, 2019)
TTWO 17JAN $140 Strike Price CALL (Expires January 17, 2020)
TMF21FEB $35 Strike Price CALL (Expires February 21, 2020)

All the best,
Roger Scott.