U.S. markets were slightly weak on Monday’s open on news China is ready to impose retaliatory tariffs on $60 billion of U.S. goods, in response to the U.S.’s planned 25% tariffs on $200 billion of Chinese goods.

National Security Adviser John Bolton said the U.S. will take the trade war far enough to get China to change.

On the other hand, China said it is prepared for a protracted trade war and doesn’t fear sacrificing short-term economic interests.

Despite the rhetoric, the major indexes found some momentum afterwards that lasted into the afternoon and held into the closing bell. Volatility

The Dow climbed 0.2% after trading to a midday high of 25,540. Resistance at 25,600 held with a close above this level being a bullish development for a run towards 25,800-26,000.

The S&P 500 gained 0.4% following its intraday push to 2,853 while holding the 2,850 level. Late January resistance is at 2,870-2,875 on continued closes above 2,850.

The Nasdaq was up for a 5th-straight session after adding 0.6% while testing a high of 7,859.

Lower resistance at 7,850-7,900 held with the all-time high at 7,933 just 1% away from triggering at current levels.

The Russell 2000 rose 0.7% after going out at its peak of 1,684 to split resistance at 1,680-1,690.

A close above the latter would be a bullish signal with fresh hurdles at 1,700-1,710 and the lifetime high at 1,708.

Communications Services and Consumer Discretionary paced sector strength after soaring 1% and 0.7%, respectively.

Technology and Financials advanced 0.6% and 0.5%, respectively.

Real Estate and Materials were the only sector laggards after giving back 0.2%, and 0.03%, respectively.

Global Economy  – European markets were mostly lower on monetary policy chatter and weaker-than-expected economic news from Germany.

UK’s FTSE 100 climbed 0.1% while the Belgium20 was down 0.2%. The Stoxx 600 Europe and Germany’s DAX 30 slipped 0.1%. France’s CAC 40 dipped 2 points, or 0.03%.

The Eurozone July Sentix investor confidence was up 2.6 to 14.7, topping forecasts of 13.4.

ECB Governing Council member Nowotny said he supports a faster normalization of monetary policy, saying a slow increase in rates wouldn’t harm the Eurozone economy.

ECB Executive Board member Lautenschlaeger said it would be wrong to change course abruptly after very expansive monetary policy and that the art is to find a clear exit that doesn’t interrupt growth.

German June factory orders fell 4%, weaker than expectations for a decline of of 0.5% and the biggest drop in 17 months.

Asian markets closed on both sides of the ledger following renewed concerns the U.S. and China are headed for a protracted trade war.

Australia’s S&P/ASX 200 jumped 0.6% and Hong Kong’s Hang Seng rallied 0.5%. China’s Shanghai sank 1.3% while Japan’s Nikkei and South Korea’s Kospi were off 0.1%.

The TD Ameritrade IMX Level for July came in at 5.45.

Market Sentiment – Fed member James Bullard said in an interview that it is not right to be waiting for the inevitable recession. He said just because there has been an economic expansion for a while does not make a recession likely.

He highlighted that the U.S. growth rate has been slow since the financial crisis and the output level is actually quite a bit below where it should be.

Bullard explained if you had a more normal expansion it might offset the idea that maybe the expansion can go on for a while longer than it has, as this is the second longest expansion on record.

Meanwhile, he continued to caution over the flattening yield curve and warned respect to what it’s implying.

On tariffs, he said they are controversial, for sure, and that they have reignited a global discussion over trade. Bullard said analysts need to think about where analysts want to get to, such as no barriers to trade.

However, he added that’s not likely since other countries are protectionist.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after topping out at $119.84.

Fresh resistance at $120-$120.50 and the 50/200-day moving averages easily held. Rising support is at $119.25-$118.75.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) traded up to $255.24 intraday with lower resistance from late July and late February at $255.50-$256 holding.

Continued closes above the latter would be a bullish signal for a run towards $258-$260.

Support is at $254-$253.50. A close below the latter could signal a false rebound with additional weakness towards $252-$250.

RSI is back in a slight uptrend with resistance at 65-60.

A close above the latter would be a bullish development signaling additional strength. July and early August support is at 60.

The Health Care Select Sector Spider (XLV) closed in positive territory for the 6th-straight session after tapping a high of $90.17. January resistance at $90-$90.50 held.

A move above the latter would be a bullish development for a run towards the all-time high at $91.79.

Continued closes above $92 would also represent a possible double-top breakout with blue-sky territory towards $93-$95, depending on momentum.

However, a quick test of $92 and move close back below $90 would be a slightly bearish signal for a double top breakdown.

Current support is at $89.50-$89 with a close below $88.50 signaling additional weakness.

RSI has cleared major resistance at 70 with continued closes above this level leading to a possible push towards 75-80 and January peaks.

Support is at 65-60 if 70 fails with a move below the latter signaling additional weakness and a near-term top in XLV.

All the best,
Roger Scott