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Take-Aways

The S&P 500 has recaptured a major battleground zone to the upside over the past week of trading, setting up an attack on the declining 200-day moving average from below. The Ten-Year note rallied above the declining 50-day moving average for the first time since the summer of this year, giving some degree of relief for fixed income investors. Trends within forward-looking and realized volatility continue to abate, but equity investors want to see more downside to have further conviction that the tides could be shifting. As always, risk management remains paramount.

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Mid-Week Market Update – United States

The S&P 500 has powered through the 3,900 level that we have been calling out in our notes over the past several weeks after briefly stalling at this zone early last week. The index is eyeing the declining 200-day moving average at the 4,075 zone. Note that the declining 200-day moving average stopped the index’s advanced during the summer rally and will be a key area for investors to keep an eye on. RSI has lifted off from the lower bound of the bullish regime with room to the 70 level.

The S&P 600 has powered through the declining 200-day moving average to the upside over the past week of trading in a bid to turn the trend from bearish to bullish. Note that similar price action played out in the summer rally and bulls will want to see additional time spent above this indicator. RSI continues to struggle with the 60 level as the bulls are looking for an overbought reading above the 70 mark. Relative to the S&P 500, the group has faded from long-term relative resistance at the highlighted zone but remains above the ratio’s rising 50-day moving average. We are watching closely for a relative breakout.

The NASDAQ 100 has recaptured the declining 50-day moving average over the past week of trading as the index sets up another run to test the declining 200-day moving average from below. RSI has stalled at the 60 level, a zone that the bulls want to see cleared to the upside. Relative to the S&P 500, the group is testing relative resistance at the highlighted breakdown level and below the ratio’s 50-day moving average. Until these two areas are cleared to the upside on a relative basis, the bias remains with the bears.

The Ten-Year Treasury Note has recaptured the declining 50-day moving average to the upside over the past week of trading, the first occurrence since July of this year after rallying from support at the $109.50 zone. So far, this has not done much to change the bearish trend, but a break above the $114 zone could be incrementally bullish for bonds. RSI has stalled at the 60 level, a zone that has given pause to several counter trend rallies over the past year. More work is needed to change the tide from bearish to bullish.

The Bloomberg Commodity Index is roughly flat over the past week of trading after breaking of the downtrend line and the declining 50-day moving average to the upside. While the group remains above intermediate support at the 109 zone, a break above the 200-day moving average would be a welcome development for commodity bulls. RSI remains above the breakout from compression at the highlighted zone but has stalled over the past week of trading. Relative to the S&P 500, the group has lost the ratio’s 50-day moving average to the downside below relative resistance at the highlighted zone.

Volatility Index

The CBOE S&P 500 Volatility Index (VIX) is testing the declining 50-day moving average from below after rallying from the low 20’s. For now, the recent price action in the index can likely be interpreted as a short-term counter trend move, but equity bulls will want to see a continued decline to have confidence in a further rally in the S&P 500.

Across timeframes, realized volatility via ATRs continues to decline. While 21-day (one-month) volatility remains above its long-term uptrend, intermediate 63-day (three-month) volatility has broken its uptrend to the downside while 126-day (six-month) volatility is threatening its own uptrend. Equity bulls would welcome a continued breakdown in these metrics.

Beginning Monday, November 21st, all Research by Potomac content will be moving inside our platform. To continue receiving our Daily Note, and view all the content we produce each month, please signup for a free trial.

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