Key Points

  • Software Gaps to the Downside, Giving Up a Leadership Position
  • NASDAQ 100’s Relative Trend Turns Lower
  • Small Caps are Still in the Range, But the Relative Trend is Improving
  • 10-Year Note is Now Oversold
  • Sentiment is Not as Fearful This Week

Chart in Focus

Below we note that the Nasdaq 100 may be in the process of giving up its leadership role. A key part of the Nasdaq 100 is Software, and the S&P 500 Software Index is also in the process of giving up its leadership role. Price has gapped below the 50-day moving average while breaking the uptrend from the May low.

The Relative trend is also turning lower and has broken below the 50-day moving average after failing at resistance.

Mid-Week Market Update – United States

The S&P 500 closed below the 4,380 level, that said, was important last week. The index is below the 50-day moving average and is now testing the 100-day moving average (blue). The difference between last Monday’s weakness and yesterday’s weakness is a late rally last week. Yesterday, the index closed near the low of the day.  The 14-day RSI remains below support this week after failing to confirm at the recent S&P 500 highs. For the second time, this indicator is moving lower from the 50 level, indicating a shift to a bearish regime possibly playing out.

While there has been much talk and excitement about the rally in Small Caps over the past week, the simple fact of the matter is they are still stuck in the range that has driven trading since May. While the 50-day moving average has been recovered, until there is a break of the March and June highs, we are hard-pressed to join the excitement and add to the noise. Note the 14-day RSI is remaining in the middle of the range as well.

If we were to become excited, it would be about the relative trend, which has broken above the 50-day moving average after a successful test/hold of support.

The NASDAQ 100 Index is testing key support and closed below the low that was made last Monday and the 50-day moving average, but above the 100-day moving average (blue). The 14-day RSI is nearing an oversold level and may be in the process of shifting to a bearish regime after failing to confirm the recent price highs.

On a relative basis, the NASDAQ 100 has broken below price-based support and the 50-day moving average, making it hard to continue classifying this group as leadership.

As discussed with the weekly chart on Monday and can be seen with more granularity here, the 10-Year Note has come under intense pressure after fading from the 50 and 200-day moving averages. The Note has broken the uptrend line from the March lows, and the 14-day RSI is now oversold, completing a shift to a bearish regime.

The Bloomberg Commodity Index traded to a new high yesterday before reversing. The index remains above the rising 50-day moving average as well as important short-term support levels.

The biggest concern that we can see in the near-term is that the 14-day RSI has been making lower highs as the index makes higher highs, a signal that momentum may be fading.

Drilling down on the key commodities that are on our radar:

  • Copper – holding support in the consolidation.
  • Gold – no change, $1,700 is the level that the gold bugs must defend.
  • Lumber* – rally from support may be losing momentum.
  • Crude Oil – eyes for the highs after holding key support.

*Note that Lumber is not part of the Bloomberg Commodity Index

Sentiment Check

The CBOE Volatility Index (VIX) is holding above the 20 level but is, surprisingly, slightly lower than last week. In the near-term, the index has been making higher lows, a sign that odds of a spike to the upside may be increasing. 

As with the VIX, the CNN Fear & Greed Index shows less fear this week relative to last week. The reading has moved to a “Fear” position of 28 from an “Extreme Fear” position of 23 last week.

Take-Aways:

For the equity markets, unlike the weakness last Monday that was quickly bought into the end of the day, yesterday’s weakness was not. Major indexes closed near the lows of the day. At the same time, sentiment is not as fearful this week as it was last week. We must wonder if “sell the rip” is a better plan than “buy the dip,” …at least in the near term.

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.