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Key Points

  • Fresh Highs for Communication Equipment
  • S&P 500 and NASDAQ 100 Churn Just Below Record Levels
  • Commodities Pull Back; Lumber’s Bounce Looks Suspect
  • 10-Year Note Breaks a Key Level to the Upside; Yields Move Lower
  • Still More Fear Than Greed in the Market

Chart in Focus

The S&P 500 Communication Equipment Index broke to a new high yesterday and is above the rising 50-day moving average which has acted as support during the ongoing uptrend. Price-based support is at the 550-breakout level, above the moving average at 535.

Our focus, in the near-term, is on the relative trend which has been choppy since March. The ratio is above the 50-day moving average, but we want to see a break of resistance to signal that the group is moving into a leadership position.

Mid-Week Market Update – United States

After breaking to new highs on July 23rd, the S&P 500 has been churning above short-term support near 4,400. More important price-based support comes into play near the 4,250 level, just below the rising 50-day moving average that has been guiding the uptrend for the majority of 2021. If the index holds above these key metrics, the structure of the bullish trend remains in place.

The 14-day RSI is in a bullish regime, with lows established at the 40 level. The recent price highs did not produce a higher high for the indicator, but this divergence is simply a yellow flag unless support is broken. We continue to defer to the price trend. Our views are unchanged from last week.

For the S&P Small Cap 600, the bulls will argue that price remains above support at the 1,250 level. The bears will defend the fact that the index is below the 50-day moving average which is acting as resistance currently. Both would be correct, as the current trend is a months-long consolidation and sloppy trading. The 14-day RSI confirms this neutral price trend as it sits in the middle of the range.

The relative trend tilts in favor of the bears. The ratio has been making lower highs and lower lows since March and sits below the declining 50-day moving average. Importantly, this moving average is now in line with resistance, increasing the odds that it will hold if tested in the near-term.

The NASDAQ 100 Index is in a bit of a stalling pattern, just below record highs. There is near-term support at the July 19th low near 14,500, which is about to be joined by the rising 50-day moving average. Below that, 14,000 is a key level support to keep the bullish trend in place. The 14-day RSI is in bullish ranges, but like the S&P 500, did not confirm recent price highs.

Relative to the S&P 500, the NASDAQ 100 is holding above the breakout level and the rising 50-day moving average. Above these key support levels, the odds favor an attack on the early 2021 highs.

After a successful test of support at the $134 level, the 10-Year Note is now breaking above the 200-day moving average. This has pushed the yield lower, to trade below 1.20% yesterday, a signal that investors are likely expecting slower economic growth ahead.

The 14-day RSI is in bullish ranges, just below overbought levels, confirming the price strength.

The Bloomberg Commodity Index is in the process of pulling back from record levels but remains above the rising 50-day moving average which has been support of late. The big question is, was the recent move above 96 a false breakout? Commodity bulls want to see this level quickly recaptured.

Thus far, the 14-day RSI remains in a bullish regime, but we note, again, that last week’s record price high was not confirmed.

Under the hood of the commodity complex:

  • Copper – a lower high in progress?
  • Gold – triangle consolidation, waiting on a break.
  • Lumber* – bounce from support remains suspect for now.
  • Crude Oil – above support but becoming choppy.

*Note that Lumber is not a member of the Bloomberg Commodity Index.

Sentiment Check

The CBOE S&P 500 Volatility Index (VIX) has moved slightly lower over the past week but has not been able to make a new low as the S&P 500 trades near record levels. We have made the case over the past few weeks that it is hard to argue that sentiment is “overly” bullish and that remains our view today.

Confirming our view that investors are not exhibiting signs of exuberance is the fact that the CNN Fear & Greed Index remains in a “Fear” position this week. The index currently stands at 30, up from 26.

Take-Aways:

As has been the case for the past few weeks, investors are not showing signs of excessive greed despite the S&P 500 and the NASDAQ 100 trading near record highs. Away from equities, the 10-Year Note breaking above the 200-day moving average has sent yields lower, a potential tailwind for the NASDAQ and other growth themes across the equity landscape.

Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.