U.S. markets showed strength throughout Wednesday’s session as positive developments overseas and a ton of Fed speak here at home helped sentiment.

The major indexes have remained in a longer-term trading range since the start of August but are once again pushing near-term and crucial resistance levels

The Nasdaq rallied 1.3% after reaching a late day high of 7,981.

Near-term and lower resistance at 7,950-8,000 was reclaimed with a close above 8,050 and the 50-day moving average being a more bullish signal for additional strength towards 8,100-8,150.

The S&P 500 was up for the 4th time in 5 sessions after adding 1.1% and testing a high of 2,938.

Current and lower resistance at 2,925-2,950 was cleared and held with a move above the latter and the 50-day moving average signaling additional strength towards 2,975-3,000.

The Dow rose 0.9% following the intraday push to 26,362.

Near-term and low resistance at 26,400-26,600 held with a close above the latter and the 50-day moving average being a bullish signal for a run towards 26,750-27,000.

The Russell 2000 also gained 0.9% following the opening pop to 1,487.

Current and lower resistance at 1,485-1,500 was challenged but held with a close above the latter signaling additional strength towards 1,515-1,530 and the 200/50-day moving average.

Communication Services and Technology led sector strength after rallying 2% and 1.7%, respectively, while Energy was up 1.4%. There was no sector weakness.

Global Economy – European markets closed higher across the board after the U.K. Parliament took a crucial step to block a no-deal Brexit.

Meanwhile, the Bank of England lowered its estimate for the scale of damage to the U.K. economy in a no-deal Brexit scenario

France’s CAC 40 soared 1.2% and Germany’s DAX 30 was higher by 1%.
The Stoxx 600 rose 0.9% and the Belgium20 added 0.7%. UK’s FTSE 100 advanced 0.6%.

Asian markets closed mostly higher after Hong Kong leader Carrie Lam formally withdrew the extraditions legislation that had set off three months of protests in the region.

Hong Kong’s Hang Seng zoomed 3.9% and South Korea’s Kospi jumped 1.2%. China’s Shanghai rallied 0.9% and Japan’s Nikkei nudged up 0.1%. Australia’s S&P/ASX 200 climbed 0.3%.

China’s Caixin/Markit Services Purchasing Managers’ Index came in at 52.1 in August, its highest since May.

Australia’s gross domestic product rose 0.5% quarter-on-quarter, and grew 1.4% year-on-year, both matching forecasts.

MBA Mortgage Applications declined 3.3% after the prior week’s 6.2% drop. All the weakness was in the refinincing index which fell 7% after a prior 7.6% slide.

The purchase index rebounded 3.6% after two week’s of declines. The 30-year fixed rate fell to 3.87% from 3.94%. The 5-year ARM dipped to 3.40% from 3.42%.

The International Trade in Goods Deficit narrowed 2.7% to -$54 billion in July after slipping -0.6% to -$55.5 billion in June. Exports rebounded 0.6% following June’s -1.9% decline while imports dipped -0.1% following the prior -1.7% drop.

Excluding petroleum, the deficit was -$51.4 billion compared to -$54.1 billion.

The real goods deficit dipped to -$85.5 billion from -$86.2 billion with exports rising 0.4% versus -1.8% previously, while imports were unchanged from -1.2%. The deficit with China rose to -$32.8 billion from -$30.0 billion, and widened to -$3.5 billion with Canada versus -$2.9 billion.

The Fed’s Beige Book reiterated the economy expanded at a modest pace through August as the majority of businesses remained optimistic over the near term even as trade and tariff uncertainties continued.

Reports on consumer spending were mixed, but auto sales generally grew modestly.

Manufacturing was down slightly. Transportation activity softened, with some of it a function of slowing global demand and heightened trade tensions.

Home sales remained constrained in the majority of Districts due to low inventories.

Activity in the service sector was generally seen positive.

Employment grew modestly, on par with the prior report while job growth varied by industry. Staffing agencies reported tightness across various labor market segments and there was strong upward pressure on pay for entry level and low skilled workers. T

here were modest increases in prices, on net, versus the prior report as retailers and manufacturers in some Districts reported slight increases in input costs.

While there was some ability to pass on price increases, manufacturers said they had limited ability.

Reports on the impacts of tariffs were mixed, with some Districts anticipating the effects would not be felt for a few months.

U.S. chain store sales climbed 1.2% in the week ending August 31st, after rising 0.9% previously. The 12-month pace accelerated to a 2.1% year-over-year clip versus 1.7% previously.

Atlanta Fed’s GDPNow cast was trimmed to a 1.467% Q3 growth rate. The nowcast of Q3 real personal consumption expenditures growth and Q3 real nonresidential equipment investment growth decreased from 3% and -1.7%, respectively, to 2.8% and -2.4%, respectively.

The nowcast of the contribution of net exports to Q3 real GDP growth decreased from -0.26% to -0.33%.

Redbook Store Sales were up 6.5% for the year in the week ending August 31st.

Market Sentiment – –St Louis Fed James Bullard said a 50 basis point easing would get ahead of market expectations as the trade war has become a broader reckoning to the global economy and creates a global shock.

Boston Fed Eric Rosengren said no immediate rate action is necessary as long as the economy stays on track.

He said risks are elevated, but have yet to become a reality, as the U.S. remains resilient thanks to the strong labor market and modestly rising wages.

Rosengren doesn’t believe the markets were signaling a recession, rather the curve inversion has resulted from money flooding into the 10-year Treasury and away from the negative yields elsewhere in Japan and Europe.

Minneapolis Fed Neel Kashkari said slower global growth will weigh on the U.S. economy.

He said the most concerning signal is the inverted yield curve and that tariffs and the trade war are concerning for businesses. He doesn’t believe the job market is overheating, and low wages mean the U.S. is not at full employment.

He went on to add until there is evidence of inflation, the Fed shouldn’t tap on the brakes.

Dallas Fed Robert Kaplan said risks to the outlook are to the downside but the downshift in the entire yield curve has eased financial conditions.

He said it also relevant that the entire curve is now below the funds rate and that he is monitoring consumer sentiment to see if it the weaker macro data is seeping into consumer sentiment.

Kaplan thinks the supply-demand situation in oil is near balance, after excess supply conditions back in 2014-2016, but prices have declined due to demand worries. He added oil and gas producers are cutting back or are being very cautious on capex.

New York Fed John Williams said his number one goal is to keep the expansion alive. He said the U.S. economy is in a good place relative to the Fed’s goals, but faces risks and uncertainties.

He added with the uncertain environment, vigilance and flexibility are essential and key to the policy stance and how the economy evolves is fundamentally tied to international developments.

Williams went on to say the Fed remains data dependent and will be watching U.S. and international numbers for clues. He said data on the economy is mixed with solid consumer spending while manufacturing is weakening.

Low inflation seems to be the problem of this era, he added, while growth overall remains moderate.

Williams also noted the downward revisions to employment growth and suggested momentum is less robust.

The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the 4th time in 5 session but remains in a 6 session trading range d4spite testing a high of $147.62. Lower resistance at $147.50-$148 was tripped but held for the 4th-straight session.

A close above $148.50 and last week’s all-time high of $148.90 would be a bullish development for additional strength towards $149.50-$150.

Support remains at $147-$146.50 followed by $145-$144.50.

Market Analysis – The Spider S&P 500 ETF (SPY) snapped a 2-session slide after trading to an intraday high of $294.05. Lower resistance at $294-$294.50 and the 50-day moving average was tripped but held.

A close above the latter would be an ongoing bullish signal with near-term and upside potential towards $297-$297.50.

Current support is at $292.50-$292. A close back below the latter would be a slightly bearish signal with downside risk towards $290.50-$290.

RSI is in an uptrend with resistance at 55-60 and mid-July highs.

Support is at 45-40 if 50 fails to hold.

A move below 40 would signal additional weakness towards 35-30 with the latter representing the August and late May low.

The Spider Gold Shares (GLD) was up for the 2nd-straight session after trading to a fresh 52-week and 6-year high at $146.82. New and lower resistance at $146.50-$147 was cleared and held.

A close above the latter would be an ongoing bullish signal for a run towards $148.50-$149.

Near-term and rising support is at $146-$145.50.

A close below the $143.50 level would be a slightly bearish development and would signal a possible near-term top with risk towards $142-$141.50.

RSI is pushing near-term resistance at 70.

A move above this level would signal additional strength towards 75-80 and prior highs from June in play.

Support is at 65-60 with the latter representing the August low.

We are allocating the portfolio as follows:

30% in AMGN closed on Wednesday at 206.32
30% in SNPS closed on Wednesday at 141.52
30% in TTWO closed on Wednesday at 133.00
10% in TMF closed on Wednesday at 33.75

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.