U.S. markets rallied towards prior resistance levels despite fresh trade tensions.

President Trump said he will impose another 10% tariffs on $200 billion in Chinese imports to take effect next week while the percentage could double by 2019.

China’s Ministry of Commerce said it would respond with levies on $60 billion worth of U.S. goods.

The developments hint at a longer-lasting trade tiff but volatility settled lower while approaching a key level of prior support.

The Nasdaq rose 0.7% after making a midday run to 7,986.

Resistance at 7,975-8,000 held with a close above the latter signaling a return of momentum.
The Dow was up 0.7% following the intraday push to 26,317.

Prior and upper support at 26,200 held and gets 26,400-26,600 in play.

The S&P 500 was higher by 0.5%, after trading to a high of 2,911.

Lower resistance at 2,900-2,925 was recovered and a level that has been holding in 3 of the past 4 sessions.

The Russell 2000 added 0.4% following the rebound to 1,714. Resistance at 1,720-1,725 held with a close above the latter being a slightly bullish signal.

Consumer Discretionary led sector strength after rising 1.3%.

Communications Services and Tech rallied 0.7 and 0.6%, respectively.

Real Estate and Consumer Staples paced sector laggards after falling 0.6% and 0.4%. Utilities were off 0.2%.

Global Economy – European markets were mostly higher following comments from the ECB.

Germany’s DAX 30 rose 0.5% and the Belgium20 added 0.4%. France’s CAC 40 gained 0.3% and the Stoxx 600 Europe climbed 0.1%. UK’s FTSE 100 was off 2 points, or 0.03%.

The ECB said that the Eurozone banking system is unlikely to restore pre-crisis levels of return on equity due to changes in the environment, risk profile and capitalization.

Additionally, ECB President Draghi said Eurozone banks need to speed up disposal of their bad loans and shrink their hard-to-value investments if they want to feel comfortable enough to merge.

Asian markets showed strength as traders shrugged off the latest round of U.S. tariffs on $200 billion of Chinese goods set to go into effect next week.

Japan’s Nikkei soared 1.4% and China’s Shanghai jumped 1.2%.

Hong Kong’s Hang Seng advanced 0.5% and South Korea’s Kospi edged up 0.3%. Australia’s S&P/ASX 200 gave back 0.4%.

The NAHB housing market index held steady at 67 in September after dipping 1 point to that level in August.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) continued its recent downtrend after tumbling to a low of $117.16.

Prior support at $117.50 from late May and early June failed to hold and opens up further weakness towards $117-$116.50.

Lowered resistance at $117.75-$118.25.

The 50-day moving average remains on track to fall below the 200-day moving average.

This would form a death cross and is typically a bearish technical pattern for lower lows.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 5th time in 6 sessions after trading to a high of $263.53. January resistance at $263.50-$264 held.

Continued closes above the latter would be a bullish development for a possible run towards $265-$266 and fresh all-time highs..

Near-term support is at $261.50-$261.

The index has been in a mini-trading range the past 3 sessions with a close below $260.50-$260 leading to a possible breakdown.

RSI is in a slight uptrend with resistance at 70.

A move above this level would be a bullish signal for a retest of 75-80 and December 2017 peaks. Support is at 65-60.

Bitcoin Investment Trust (GBTC) made a push to $8.25 with near-term and lower resistance at $8.25-$8.50 holding.

A close above $8.75 would be a more bullish development.

The 50-day moving average remains in a downtrend and is showing no signs of leveling out.

Support is at $8-$7.75.

A move below the latter would be a continued bearish development with risk towards the $7.50 level and longer-term support from October 2017.

RSI is nearing resistance at 40. A move above this level could lead to a possible push towards 45. Support is at 35-30.

Existing Position Update

TLT is showing strong oversold level. Price is penetrating both the envelope and showing extreme oversold level on the 10 day RSI…telling me that price should bounce back up over the near term.

We have substantial time till expiration and our risk to reward level warrants holding the position for few more days.

AMZN showing more upside over the next few sessions. The increase in volatility and trading range is not positive for upside and I’m going to consider capping the stock with a bear call spread if volatility increases and price stagnates more.

Initiated GOOG bear call spread. I chose GOOG instead of GOOGL because liquidity was better in the options. These stocks follow each other about 99%.

I’m seeing less than impressive rise in price – especially in light of the upside in the overall stock market. Price is below the 50 day line and after becoming oversold recently – we saw a very unimpressive jump in price of the stock.

Relative strength over the near term is unimpressive as well.

We should see strong downside when stocks see minor selling pressure in the near term.

Roger Scott