U.S. markets were sluggish throughout the 1st half of Tuesday’s action before showing some midday strength on news China may offer to buy more U.S. goods in trade talks.

According to reports, China is expected to agree to purchase more U.S. agricultural goods in hopes of reaching a better trade agreement as the two sides prepare for a meeting between their top negotiators in October.

The choppy resumed shortly afterwards and once the news faded with the major indexes closing mostly higher for session and Tech lagging. The small-caps showed continued strength as its largest sector, Financials, remained strong and have been one of the factors holding them back over the past few months.
The Russell 2000 was up for the 2nd-straight session after jumping 1.2% while tapping a late day high of 1,543.

Lower resistance at 1,545-1,560 held on the close above the 50-day moving average with a move above the latter getting 1,575-1,590 in play.

The Dow extended its winning streak to 5-straight after adding 0.3% and closing on its session high of 26,909.

Near-term and lower resistance at 27,00-27,250 held with the July all-time high at 27,398.

The S&P 500 added a point, or 0.03%, following the late day run to 2,979 and closing high.

Lower resistance at 3,000-3,025 held with the all-time peak at 3,027, also set in July.

The Nasdaq fell 3 points, or 0.04%, after trading in the red throughout the day while bottoming at 8,001.

Upper support at 8,050-8,000 and the 50-day moving average held for the 2nd-straight session with a close below the latter getting 7,900-7,850 in focus.

Energy led sector strength after soaring 1.2% while Materials and Industrials advanced 1% and 0.9%, respectively. Real Estate sank 1.5% to lead sector laggards while Consumer Staples and Technology fell 0.6% and 0.5.

Global Economy – European markets showed strength after prime Minister Boris Johnson vowed he would not request an extension to Brexit.

This comes right after a new law came into force demanding that he delay Britain’s departure from the EU until January 2020 unless he can secure a new Withdrawal Agreement.

The Belgium20, UK’s FTSE 100 and Germany’s DAX 30 gained 0.4%. The Stoxx 600 and France’s CAC 40 nudged up 0.1%.

Asian markets were mixed as disappointing economic news from China, but better-than-expected, raised concerns about deflationary pressures.

China also announced that limits to foreign investment in stock and bond markets will be scrapped in a renewed bid to attract more foreign funds.

South Korea’s Kospi rose 0.6% and Japan’s Nikkei gained 0.4%.

Hong Kong’s Hang Seng added 2 points, or 0.01%. Australia’s S&P/ASX 200 fell 0.5% and China’s Shanghai slipped 0.1%.

China’s producer price index for August fell 0.8% year-over-year versus forecasts for a decline of 0.9%.

Meanwhile, China’s consumer price index rose 2.8% in August, topping estimates for 2.6% growth, with food prices soaring 10%, following a 9.1% surge in July.

NFIB Small Business Optimism Index was down 1.5% to 103.1 in August, after rebounding 1.4% to 104.7 in July, and missing expectations for a reading of 103.5.

Declines were broad-based as plans to hire dipped to 20% from 21% previously, while those expectorating a better economy dropped to 12% from 20%. Those expecting higher sales slid to 17% from 22%.

Redbook Store Sales were up 6.4% for the year in the week ending September 7th.

U.S. weekly chain store sales dropped 2.7% in the week ending September 7th after rising 1.2% in the prior week. Hurricane Dorian has a major impact, while a heat wave across the Southeast diminished demand for seasonal fall items. There wasn’t much action from the Labor

Day holiday weekend, as well. On a 12-month basis, sales slowed to a 1.1% year-over-year clip versus the 2.1% pace previously.

The JOLTS report showed job openings declined 31,000 to 7,217,000 in July, after slumping 136,000 to 7,248,000 in June, and missing forecasts for a print of 7,311,000.

The job openings rate fell to 4.5% from 4.6% while hirings surged 237,000 to 5,953,000 after the prior 44,000 decline to 5,716,000 with the rate rising to 3.9% from 3.8%.

Quitters increased 130,000 to 3,592,000 after slipping 16,000 to 3,462,000 previously with the rate edging up to 2.4% from 2.3%.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 3rd time in 4 sessions after testing a low of $140.66 ahead of the closing bell. Mid-August and upper support at $140.50-$140 held.

A close below the $139.50 level reopens risk towards $138.50-$138 and the 50-day moving average.

Lowered resistance at $141.50-$142.

Market Analysis – The S&P 400 Mid Cap Index ($MID) showed strength for the 4th time in 5 sessions after closing on its session high of 1,937.

Late June and lower resistance at 1,925-1,950 was cleared and held on the 2nd-straight close above the 50-day moving average.

This was a continuing bullish signal with continued closes above 1,950 suggesting a retest towards 1,975-2,000.

Current support is at 1,910-1,890. A move below the latter would signal a near-term top and reopen risk towards 1,875 and the 200-day moving average and the prior breakout level from earlier this month.

RSI is an uptrend with resistance at 60-65 and the latter representing the July peak.

A close above 65 would be an ongoing bullish signal for additional strength towards 70-75 and February highs. Support is at 55-50.

The Health Care Select Sector Spider (XLV) was up for the 4th time in 5 sessions despite the intraday plunge to $89.02. Near-term and upper support at $89.50-$89 was breached but held.

A close below the latter and the 200-day moving average would likely signal additional selling pressure towards $88.50-$88 with the early August lows at $88.19 and $88.20, respectively.

Current resistance at $91-$91.50.

Continued closes above the latter and the 50-day moving average would be a bullish signal for a possible retest towards $92.50-$93.

RSI has been flatlining but managed to clear resistance at 50.

Continued closes above this level would be a slightly bullish development for additional strength towards 55-60 with the latter representing the mid-July peak.

Support is at 45-40.

We are allocating the portfolio as follows:

30% in AMGN closed on Tuesday at 197.04
30% in SNPS closed on Tuesday at 135.80
30% in TTWO closed on Tuesday at 128.40
10% in TMF closed on Tuesday at 29.45

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

AMGN 17JAN $220 Strike Price CALL (Expires January 17, 2020)
SNPS 20DEC $145 Strike Price CALL (Expires December 20, 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.