- New Highs for the S&P 500 & NASDAQ Composite
- Small Caps Threaten a Breakout, Will This Be the Week?
- Watching the Flattening Yield Curve
- Commodities Pause after a Strong Run
- Dollar Holds Support, Breakout in the Cards?
The S&P 500 closed higher for a fourth consecutive week and finished at another record high. We continue to see initial support at the 10-week moving average, near 4,475, and stronger price-based support near 4,300. Finally, the long-term trend is defined by the rising 40-week moving average, which is currently near 4,235.
The 14-week RSI remains in a bullish regime and is nearing an overbought condition. We would like to see this indicator make a higher high to add a stronger momentum confirmation to the price trend.
The S&P Small Cap 600 Index remains above the 10 and 40-week moving averages, trading near the top of the consolidation that has marked trading since March. The 14-week RSI is holding in a bullish regime, giving an edge to the bulls, but we want to see this index breakout of the consolidation to add to the bullish trend for equities as an asset class.
On a relative basis, Small Caps are holding the break of the downtrend line and remain above support despite underperforming the S&P 500 again last week.
Small Cap leadership was a mixed bag last week with some offense and some defense at the top of the list:
- Technology – Choppy consolidation with higher lows, looking for a breakout.
- Health Care – Holding support in a consolidation.
- Staples – Sloppy trading in a consolidation.
- Utilities – Working on a countertrend rally, burden is on the bulls.
The NASDAQ Composite Index opened the week at the rising 10-week moving average and spent the duration of the week trading higher to close at a new record. The 40-week moving average lines up with price-based support near 14,000. The 14-week RSI is in a bullish regime, lending momentum confirmation to the price action.
Relative to the S&P 500, the NASDAQ Composite is holding above support, trading in a consolidation since July.
U.S. Fixed Income
The 10-Year Note is holding below broken support (now resistance?) as it continues to trade below the 10 and 40-week moving averages. Momentum confirms the trend with the 14-week RSI near oversold levels after breaking the short-term uptrend. While it would not be surprising to see an oversold bounce from current levels, the benefit of the doubt is with the treasury bears for now.
Across the curve, the picture has become a bit cloudy. Short-term tares continue to move higher, while long-term rates move lower. This has led to a flattening of the yield curve which will have to be closely watched as it will have implications under the surface of the equity market, particularly with the Financials, who befit as the curve steepens.
The Bloomberg Commodity Index closed lower for a second consecutive week but is holding near its recent highs. The index remains above the rising 10-week moving average and the bullish trend line from the 2020 lows. Momentum is with the price trend as the 14-week RSI is currently overbought. Pullbacks to the 97 – 100 range are an opportunity for commodity bulls.
Relative to the S&P 500, Commodities are testing the breakout level. Holding the line will keep the odds in favor of an attack on the highs.
Under the surface of the commodity market:
- Precious Metals – Tried to break the trendline but failed to hold.
- Industrial Metals – Testing trendline support after a strong rally.
- Agriculture – Breaking out of the consolidation, room to run.
- Energy – Pausing near recent highs.
The Global Dow tried to breakout out of the consolidation but faded as the week ended. The index remains in a consolidation but above the 10-week moving average. The 14-week RSI is holding in a bullish regime above the broken trendline, giving an edge to the bulls for now.
On a relative basis, the Global Dow remains below resistance and is moving toward the lows of the year. U.S. investors with a home country bias continue to be rewarded, a trend that is not likely to change until resistance is overcome.
The U.S. Dollar Index found support at the rising 10-week moving average but remains below resistance at the 94.50 level. The 14-week RSI has been making higher lows as it shifts to a bullish regime, increasing the odds that resistance will be broken.
The S&P 500 and the NASDAQ Composite closed the week at record levels while the S&P 600 and Global Dow are trading at the top of their respective ranges. This sets a bullish tone for the final two months of the year. A flattening yield curve and dollar strength should help to keep bullish sentiment in check in the near term and may provide a “wall of worry” for the bulls to climb.
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