U.S. markets showed strength throughout Wednesday’s session after China exempted some U.S. imports from tariffs with reports that talks are progressing ahead of planned for trade talks in early October.

The small-caps led the way higher for the 3rd-straight session after clearing major resistance while the major indexes closes within 1%-2% of all-time highs.

Volatility continued to ease after closing below major support and is showing signs of higher market highs.

The Russell 2000 rocketed 2.1% after testing a high north of 1,575 while closing back above its 50-day moving average.

Prior and lower resistance from early July at 1,575-1,590 was cleared but held by a smidge with a close above the latter signaling additional momentum towards 1,600-1,615.

The Nasdaq gained 1.1% after trading and closing at a fresh monthly high of 8,169.

Prior and lower support at 8,150-8,200 was cleared and held with a move above the latter leading to a possible retest towards 8,250-8,300 and the all-time high at 8,339.

The Dow was up for the 6th-straight session after jumping 0.9% while also closing on its high of 27,137.

Near-term and lower resistance at 27,000-27,250 was cleared and held with a move above the latter getting the July all-time high at 27,398 in play.

The S&P 500 climbed 0.7% after closing on the session peak just south of 3,001. Lower resistance from late July at 3,000-3,025 was recovered with a pop past the latter opening up blue-sky territory towards 3,050-3,075 with the July record high at 3,027.

Technology, Materials, and Healthcare were higher by 1% while Industrials advanced 0.9%.

Real Estate was the only sector in the red after giving back 0.2%.

Global Economy – European markets settled higher ahead of European Central Bank meeting on Thursday to decide its latest monetary policy.

Traders are cautiously optimistic for a fresh stimulus package to boost the ailing eurozone economy.

UK’s FTSE 100 rallied 1% and the Stoxx 600 soared 0.9%. Germany’s DAX 30 rose 0.7% while the Belgium20 and France’s CAC 40 were up 0.4%.

Asian markets were mostly higher after China offered to increase U.S. agricultural purchases in exchange for a delay in tariffs.

Hong Kong’s Hang Seng zoomed 1.8% and Japan’s Nikkei gained 1%.

South Korea’s Kospi advanced 0.8% and Australia’s S&P/ASX 200 added 0.4%. China’s Shanghai fell 0.4%.

MBA Mortgage Applications rebounded 2% following the 3.1% drop in the prior week and snaps a string of 3 consecutive weekly declines. The purchase index climbed 4.5% after rising 3.6% in the week prior.

The refi index edged up 0.4% following a prior 7% drop. The 30-year fixed rate mortgage rate slid to 3.82% from 3.87% while the 5-year ARM edged up to 3.42% from 3.4%.

PPI edged up 0.1% in August, while the core rate rose 0.3% and topping expectations of 0.2%. There were no revisions on July’s prints of 0.2% and -0.1%, respectively.

Prices in the services sector led the gains with a 0.3% rise from -0.1%. Goods prices declined -0.5% versus the prior 0.4% gain, with food prices -0.6% lower from 0.2%, and energy prices down -2.5%, erasing the previous 2.3% gain.

The 12-month nudged up to 1.8% year-over-year versus the prior 1.7% pace, with the core rate rising to 2.3% versus 2.1%

Atlanta Fed Business Inflation Expectations for September was up 2% for the year.

Meanwhile, Atlanta Fed’s Q3 GDPNow cast was bumped up to 1.88%, from last week’s 1.833% projection.

The nowcast of the contribution of inventory investment to Q3 real GDP growth increased from -0.23% to -0.18%.

Analysts are forecasting a 2.4% pace of growth for Q3 following an upward revision for Q2 to a 2.2% clip.

Wholesale Trade rose 0.2% in July for the final reading, matching expectations, and rebounding from June’s -0.1% reading.

Wholesale sales increased 0.3%, erasing the -0.3% decline from June, and breaking a streak of 3-straight monthly declines.

The inventory-sales ratio was unchanged at 1.36 for the 3rd-straight month.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 3rd-straight session despite trading to a 1st half high of $141.15.

Lower resistance at $141.50-$142 easily held with continued closes above the latter signaling a possible near-term bottom.

Upper support at $140.50-$140 failed to hold on the fade to $140.39 ahead of the closing bell. A move below the $139.50 level would be an ongoing bearish signal with risk towards $138.50-$138 and the 50-day moving average.

RSI is pushing mid-July support at 40 with a move below this level signaling additional weakness. Resistance is at 45-50.

Market Analysis – The Russell 3000 Index ($RUA) was up for the 5th time in 6 sessions after reaching an intraday peak of 1,761. Prior and lower resistance from late July at 1,750-1,770 was cleared and held.

Continued closes above the latter would be an ongoing bullish signal with upside potential towards 1,780-1,800 and fresh all-time highs.

Current and rising support is at 1,740-1,720 and the 50-day moving average sandwiched in-between.

RSI is back in an uptrend after clearing resistance at 60.

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

Support is at 55-50 with a move below the latter reopening weakness towards 45-40.

The Spiders S&P Homebuilders ETF (XHB) extended its winning streak to 6-straight sessions after surging to a fresh 52-week peak of $43.70.

Lower resistance from November 2017 at $43.50-$44 was cleared and held.

Continued closes above the latter would be a bullish signal for a run at $44.25-$44.75 and all-time highs from February 2006 when the fund was created.

Current support is at $43-$42.50.

A close below the latter would signal a near-term top with retest potential towards $42-$41.50 and the 50-day moving average.

RSI remains in a strong uptrend after clearing resistance from July at 65. Continued closes above this level would signal additional strength towards 70-75 and April highs.

Support is at 60 with a move below this level signaling additional weakness towards 55-50.

We are allocating the portfolio as follows:

30% in AMGN closed on Wednesday at 195.84
30% in SNPS closed on Wednesday at 134.64
30% in TTWO closed on Wednesday at 122.62
10% in TMF closed on Wednesday at 29.29

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.