U.S. markets were slightly sluggish to start the shortened week as trade talks with China continued in Washington on Tuesday, with higher level negotiations starting later in the week.

The tight trading ranges expanded in the second half and the higher closes were bullish signals as the week after February options expiration is typically bearish.

Volatility stayed slightly elevated after holding resistance on the open while closing below the 15 level for the 2nd-straight session.

The Russell 2000 rose 0.3% while testing a high of 1,578 in the final hour of trading.

Fresh and lower resistance at 1,570-1,580 was cleared and held with additional hurdles at 1,590-1,600 and the 200-day moving average.

The Nasdaq gained 0.2% after making a late session run to 7,507 Fresh and lower resistance at 7,500-7,575 was cleared but held on the 2nd-straight close above the 200-day moving average.

The S&P 500 also added 0.2% following the late day push to 2,787.

Lower resistance at 2,775-2,800 was cleared and held with a move above the latter getting 2,825-2,850 in play.

The Dow was up 8 points, or 0.03% after trading in a 141-point range while testing a high of 25,961.

Fresh and lower resistance at 26,000-26,250 held with a close above the former being a continuing bullish development.

Materials and Utilities led sector strength after rising 0.6%. Consumer Staples and Consumer Discretionary advanced 0.5% and 0.4%, respectively.

Healthcare and Industrials were the only sector laggards after falling 0.2% and 0.04%.

Global Economy

European markets settled mostly lower after Europe’s largest bank warned of an economic slowdown in China, as well as Brexit uncertainty, after reporting earnings.

UK’s FTSE 100 dropped 0.6% while Stoxx 600 Europe, the Belgium20 and France’s CAC 40 were off 0.2%. Germany’s DAX 30 was higher by 0.1%.

U.K. Business Secretary Greg Clark said that Britain won’t likely reach deals with Japan and South Korea to roll over existing trade agreements before the U.K.’s scheduled departure from the EU later next month.

Germany’s current account surplus shrank for the third year in a row, falling to 7.4% in 2018 from 7.9% the previous year.

Asian markets were mixed amid renewed geopolitical tensions, with China accusing the U.S. of fueling cybersecurity fears.

Chinese officials said that the U.S. is attempting to curtail its technology development by claiming that Chinese mobile network gear might pose a cybersecurity threat to foreign countries which adopt the equipment.

Australia’s S&P/ASX 200 rose 0.3% while China’s Shanghai and Japan’s Nikkei edged up 0.1%.

Hong Kong’s Hang Seng gave back 0.4% and South Korea’s Kospi was down 0.2%.

The NAHB Housing Market Index rose 4 points to 62 in February, topping expectations of 59. The February current single family sales index increased 3 points to 67 from 64.

The future index was up 5 ticks to 68 from 63 and the index of prospective buyer traffic was up 4 points to 48 from 44.

Market Sentiment – Cleveland Fed Loretta Mester reiterated she fully supports the FOMC’s wait-and-see approach and said the economy is dynamic.

She said the Fed is data dependent but she also said that data-dependent doesn’t mean that policymakers will be unsystematic in their approach to policymaking.

Mester said policy needs to be flexible to respond to changes in economic and financial developments that inform the outlook, but the response should be fairly predictable and not a surprise if those developments occur.

Mester went on to add that she is still forecasting a 2%-2.5% economy in 2019, with the unemployment rate at or below 4%, and inflation near 2%.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after trading to a high of $122.54. Fresh and lower resistance at $122.50-$123 was breached but held into the closing bell.

A move above the latter would be a bullish signal for a run towards $123.50-$124 and fresh 52-week peaks.

Rising support is at $122-$121.50 followed by $120.50-$120 and the 50-day moving average.

Market Analysis – The Spider S&P 500 ETF (SPY) was up for the 6th time in 7 sessions after trading to an intraday peak of $278.58. Near-term resistance at $278-$278.50 was split but held with more important hurdles at $279.50-$280.

This area represents a triple-top from mid-October and was tested twice in November. A close above $280 could lead to a melt-up rally towards $282.50-$285.

Current support is at $277-$276.50.

A move below $275 would be a slightly bearish development with risk towards $272.50-$272 and the 200-day moving average.

RSI is trying to hold resistance at 70 with continued closes above this level signaling a possible run towards 75-80 and January 2018 peaks.

Support is at 65-60 with a move below the latter signaling additional weakness.

The Health Care Select Sector Spider (XLV) fell for the first time in 5 sessions following the intraday pullback to $92.59. Fresh and upper support at $92.50-$92 held with backup help at $91.50-$91.

The 50-day moving average is close to forming a death cross with the 200-day moving average but is trying to level out.

This is typically a bearish signal for lower lows if this pattern is completed.

Current resistance is at $93-$93.50. The former represents major resistance from early December and early November.

Continued closes above $93 would be a bullish development and signal a possible breakout towards $94.50-$95.

RSI is in a slight downtrend with support at 65-60. A move below the latter would signaling additional weakness towards 55-50 with the latter representing the late January low.

Late November resistance remains just below 70 with a move above this level signaling additional strength.

Existing Position Update

Initiated another spread.

Markets don’t look too volatile at this time.

Expect two sided trading action ahead.

Look for potential iron condor if end of week news is uneventful.

Roger Scott.