A Year-End
Rally?

Take-Aways:

The rally in equities last week lined up well with the view that there is potential for a countertrend move toward 3,900 for the S&P 500 into the end of the year. It is important to note that should such a rally unfold, it would not change the prevailing bearish trend in the market. For that, we would need to see the major indexes hold above their 10 and 40-week moving averages. Bonds remain in a precipitous decline, cascading below their declining moving averages and key support level. Commodities are testing the patience of the bulls as the index dances with a key support level. Finally, the dollar remains a key market driver; if it is moving higher, it is hard to make a compelling case for risk assets.

U.S. Equities

The S&P 500 rallied last week but remained below the declining 10 and 40-week moving averages. The index has support near 3,400 and resistance near 3,900.  We remain open to the idea of a countertrend rally toward this resistance zone.

The 14-week RSI has made a higher low recently, leaving a bullish divergence on the chart.

The S&P Small Cap 600 Index also rallied during the week. The index continues to trade below the 10 and 40-week moving averages but is holding support in the 1,000-1,050 zone. Here too, the 14-week RSI has made a higher low of late.

The relative trend remains on our radar for a possible breakout. A move above the October/November 2021 peaks would set the stage for further outperformance.

The NASDAQ 100 Index closed higher on the week as it battles support near the 11,000 level. The index remains below the declining 10 and 40-week moving averages, which must be broken before a serious bullish case can be made.

The relative trend continues to trade below resistance. Odds favor continued underperformance.

U.S. Fixed Income

The 10-Year Note closed lower once again last week, continuing a streak that has been in place since key support at the 2018 lows was broken. The Note is trading below the declining 10 and 40-week moving averages to keep the bears in control of the match.

The yield remains above the 3.20% – 3.50% support zone, increasing the odds of a continuation to the upside.

Rates continue to move higher across the curve, which the 2, 5, 20, and 30-year treasuries all moving to new highs in yields.

The iShares Core U.S. Aggregate Bond ETF (AGG) closed lower on the week to remain below the 2018 lows on a total return basis. The fund trades well below the declining 10 and 40-week moving averages, keeping the bears in control.

The 14-week RSI remains in an oversold position.

Global Equities

The Global Dow closed higher on the week as it fights to hold support at the pre-COVID levels. The index remains below the declining 10 and 40-week moving averages while the 14-week RSI holds in a bearish regime.

The relative trend may be showing signs that a bottoming process is playing out. A break of the trend from March 2021 could set the stage for further outperformance.

Commodities

The Bloomberg Commodity Index is holding key price-based support in the 106-110 zone. Breaking above the 10 and 40-week moving averages is an important next step to keep the secular bullish trend alive.

Momentum has also held a key level. The 14-week RSI is holding above 40, indicating that the bulls retain long-term momentum.

Across the commodity complex, Precious Metals remain below resistance again. At the same time, Industrial Metals are holding support. Agriculture continues to trade above support, but the rally is running out of momentum. Finally, Energy is also holding above support.

U.S. Dollar

The U.S. Dollar Index came under pressure last week but continues to trade above the rising 10 and 40-week moving averages. The 14-week RSI is working off an overbought condition but is holding firmly in a bullish regime.

We continue to believe that to see a reversal in the bearish trends across equities and fixed income, the dollar will likely need to reverse its bullish trend.