U.S. markets started the week with strong gains as traders shrugged off the air strikes on Syria over the weekend and instead, focused on the earnings season, which will pick up in earnest this week.

Volatility continues to subside with the major indexes making a strong run towards key resistance levels.

The Russell 2000 closed higher for the fifth-time in six sessions after rallying 0.9% while making a late session run to 1,566.

The Dow also gained 0.9% after testing a high to 24,675 to clear its 50-day moving average but a level that failed to hold into the close.

The S&P 500 added 0.8% after trading to an intraday high of 2,686 while falling a half-point shy of clearing its 50-day moving average.

The Nasdaq was higher by 0.7% after reaching an intraday peak of 7,178 but fell shy of challenging its 50-day moving average just south of the 7,200 level.

Utilities jumped 1.4% and Materials soared 1.3% to led sector strength. Consumer Staples were up 1.1% while Energy and Industrials rose 1%. There were no sectors that closed in the red.

Global Economy – European markets closed lower across the board following the weekend airstrike attacks against Syria and possible new sanctions on Russia.

UK’s FTSE 100 stumbled 0.9% and the Belgium20 gave back 0.5%. The Stoxx 600 Europe and Germany’s DAX 30 fell 0.4% while France’s CAC 40 slipped 2 points, or 0.04%.

Asian markets settled mixed with China’s Shanghai tumbling 1.5% and Hong Kong’s Hang Seng sinking 1.6% over worries about the Hong Kong dollar.

Japan’s Nikkei was up 0.3% and Australia’s S&P/ASX 200 rose 0.2%. South Korea’s Kospi climbed 0.1%.

Hong Kong’s currency weakened to the bottom of its trading band against the U.S. dollar, leading Hong Kong’s monetary authority to try to bolster it by selling $1.23 billion in U.S. dollars to buy Hong Kong dollars.

Retail Sales increased 0.6% in March, breaking a string of three monthly declines, and topping forecasts for a rise of 0.4%. Retail sales excluding autos was up 0.2%, as expected.

Business inventories rose 0.6% in February with sales 0.4% higher, matching expectations.

The NAHB Housing Market Index fell 1 point to 69 in April, marking its fourth consecutive decline after hitting 74 in December. Expectations were for a print of 70.

The Empire State Manufacturing Survey fell 6.7 points to 15.8 in April, below forecasts of 18.2.

Atlanta Fed’s Q1 GDPNow estimate was trimmed to 1.9% from 2.0% previously last week. The nowcast for first-quarter real personal consumption expenditures growth declined from 1.1% to 0.9%.

Market Sentiment – Minneapolis Fed President Kashkari said fiscal stimulus is big enough to have an effect on the trajectory of the economy and has him more confident the Fed will achieve its 2% inflation objective.

This would allow the Fed to raise interest raises sooner rather than later.

Dallas Fed Kaplan said immigration cannot be cut while also growing GDP and the workforce.

He is also very concerned that fiscal stimulus will turn into a headwind in 3-5 years but does not see inflation running away, even though analysts will see wage pressures.

Kaplan reiterated his view that he expects 3 rate hikes this year and more again next year.

He doesn’t have a problem with Fed policy being restrictive, though the current 10-year yield puts a limit on how high the Fed can raise rates.

He went to add he is not interested in creating an inversion in the yield curve.

New York Fed Dudley said 3 or 4 hikes are possible this year but doesn’t know how many more hikes will be effected, though he added the market understands that more than 4 hikes is unlikely, as that would not be gradual.

He said as long as inflation remains low, the Fed will be gradual.

Dudley added a 3% policy target is a reasonable starting point for a neutral rate, but there’s no magic neutral rate that’s constant for all time.

Regarding stock market valuations, he said they don’t look unreasonable given the economy’s gains and what’s anticipated. He said volatility is returning to normal, and he added the lack of volatility in recent years was the abnormality.

Dudley is not particularly worried about financial conditions and thinks that banks are well positioned to handle a lot more stress.

On tariffs, he said there are risks, but it’s not clear exactly what will transpire. He does believe a more restrictive outcome, however, would be a bad-bad situation with likely increases in inflation, reduced output, and weaker productivity.

The iShares 20+ Year Treasury Bond ETF (TLT) showed strength into the close after trading down to $120.18 intraday.

Support at $120.50-$120 from early April held. A close below the latter would be a slightly bearish development with risk to $119.50-$119 and the 50-day moving average.

Resistance remains at $121-$121.50.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) traded to a high of $246.67 while clearing, but failing to hold, its 50-day moving average for the first time since early March.

Near-term resistance is at $247-$247.50 with continued closes above the latter being a bullish development. Support is at $245-$244.50 following the slight breakout of last week’s mini-trading range.

A close below $242.50 would signal a possible short-term top.

RSI is back in slight uptrend after clearing resistance at 50. Continued closes above this level could lead to a possible run towards 60 and late February highs. Support is at 45-40 on a close back below 50.

The Spider S&P Retail ETF (XRT) has traded in a tight range between $44.50-$45.25 following the strong move off the $43 level earlier this month.

Today’s high tapped $45.15 with continued closes above $45.25-$45.50 being a bullish signal. Support is at $44.50-$44 with a move below the latter likely signaling additional weakness.

RSI is holding 50 with multi-month resistance at 55. A move above this level would be a bullish development for a possible run towards 60 and prior support from January.

Current support is at 45-40 on a close back below 50.

Existing Position Update

Market is trading higher. Anticipating another position tomorrow or Wed.

TSLA trading above our short strike price.

AAPL appears to be gaining some momentum.

Bond market is nervous about Syria and FED.

Will update you tomorrow as usual.

Roger Scott