Are New Highs in the Cards
for S&P 500 and NASDAQ 100?

Key Points

Mid-Week Market Update – United States

Last week, we highlighted what we needed to happen for the bulls to remain in control of the market, and they did not drop the ball. The S&P 500 tested the 100-day moving average and then quickly recovered the rising 50-day moving average and the broken price-based support levels at 4,550 and 4,630. Are new highs on tap?

The 14-day RSI remains in a bullish regime, holding above the 40 level during the pullback. The key now will be for this indicator to confirm should the index trade to new highs.

While the S&P 500 has gone a long way in repairing the damage that has been done since Thanksgiving week, the S&P Small Cap 600 still has more work to do. The index remains trapped below the breakout level as it wrestles with the 50-day moving average. There is also a gap to contend with from the selling pressure that took place on Black Friday. Ideally, the rising 100-day moving average will act as support to further weakness and set the stage for an advance. The 14-day RSI, which did become oversold recently, remains in a bearish regime for now.

The relative trend remains weak, below the 50-day moving average. It may be in the process of building a base, but we are only interested if the ratio can break above resistance.

The NASDAQ 100 remains the best game in town when it comes to the U.S. equity markets. The index traded to and held the rising 50-day moving average above the rising 100-day moving average. A break of the November 30th high will set the stage for a run to record levels. During the recent pullback, the 14-day RSI did not move below the 40-level, keeping it in a bullish regime.

Likewise, the relative trend held support at the 50-day moving average and has now regained the September highs. This keeps the NASDAQ in a leadership position that is likely to persist.

As equities have rallied, investors have dumped the 10-Year Note as quickly as they scooped up this haven asset. The Note failed at the declining 100-day moving average and has now undercut the 50-day moving average and price-based support.

While it may be tempting to say that the downtrend is resuming, we do note that the 14-day RSI continues to make higher lows. For now, we are content to call this a neutral trend, and we are happy to wait for a clearer signal to develop.

For now, the small rebound in commodities is not very compelling. The Bloomberg Commodity Index remains below the declining 50-day and flat 100-day moving averages, and price-based resistance at the 97 level. After a series of lower highs, the 14-day RSI reached oversold levels and remained in a bearish regime.

The relative trend remains under pressure and is on the verge of testing the 2021 lows.

Under the surface of the commodity market:

• Copper – Rebounding from support.
• Gold – Trying to stabilize after falling out of the range, but not bullish yet.
• Lumber – Powering higher, bullish above $800 with room to $1,050.
• Crude Oli – A nice rebound, but sill below resistance, a “show-me” story.

Sentiment Check

The CBOE Volatility Index (VIX) has seen some of its upside pressure abate over the past two days but does remain above 20. The market has reacted well to the to the divergence that we highlighted last week. Now want to see the VIX continue to trend lower as equity prices rise.

The CNN Fear & Greed Index has moved from 26 last week to 35 this week and remains in a fear position. The indicator remains near levels that could provide a contrarian tailwind, but the case is not as compelling as it was last week.

Take-Aways:

Equity markets in the U.S. have staged a solid rebound over the past two days, but selection remains important. The NASDAQ 100 continues to be the best of the bunch, and we find the action in the S&P 500 impressive. Small Caps remain on the “avoid” list until they can retake key levels and prove that they can hold above them. Commodities have proven to be a letdown on a relative basis, and we are now in “watch” mode to see if they can reestablish a bullish trend.

Sentiment has become less fearful over the past week and could still provide a contrarian tailwind, but that case was more compelling last week.