- Which Defensive Sector Will Make the Call?
- U.S. Equities are Searching for Direction
- Treasuries Build a Base at Support
- How Will Gold Respond to Overbought Conditions?
- Sentiment is Mixed
Chart in Focus
In the note below, we point out the mixed signals across the market currently. Equities are consolidating within long-term uptrends. At the same time, defensive assets, such as Gold and Treasuries, have an underlying bid to them. Finally, sentiment is mixed, with the VIX below 20, but the CNN Fear & Greed Index is in a fear position.
Adding to the mixed picture, we can see bifurcation in two of the defensive sectors of the S&P 500. On a relative basis, Real Estate is moving higher and has regained the 200-day moving average. However, Utilities are mired in a relative downtrend, below a declining 200-day moving average.
Mid-Week Market Update – United States
The rising 50-day moving average continues to be an important short-term support level for the S&P 500. The index remains in a consolidation that has been in place since mid-April. In the short-term, the market is still looking for direction. Importantly for the bulls, the downside gap that was opened on May 11th has now been filled. The longer-term trend remains to the upside, as the S&P 500 trades well above the rising 200-day moving average, which is in the area of important support at the February and March lows. Momentum remains in a bullish regime, as the RSI has held above the 40 level.
Directionless trading can be seen more clearly in the chart of the S&P Small Cap 600, which has been moving sideways since making a high in March. The index is trading around the, now flat, 50-day moving average. Support is in the 1,250 – 1,300 range. If support were to break, the rising 200-day moving average (currently near 1,140) would become an important level for the bulls to defend. Momentum remains stuck in the middle of the range after making a series of lower highs.
On a relative basis, the S&P 600 continues to test/hold support.
Further evidence of equity markets searching for direction can be seen in the NASDAQ Composite Index, which is also hovering around a flat 50-day moving average. The March low, currently in line with the rising 200-day moving average, remains the key level to watch. If broken, the longer-term trend will have turned to the downside. Momentum is not providing much help, as the RSI trades in the middle of the range.
Relative to the S&P 500, the NASDAQ is testing broken support (now resistance?) from below. Thus far, the ratio has not been able to make a higher high since topping in February.
As equity markets search for direction, we cannot help but notice the base that is forming in the 10-Year Treasury Note. The 10-Year has found support at the 2019 consolidation zone and has subsequently regained its 50-day moving average, which is beginning to turn higher. Breaking out from the current base would open the door to a run toward the declining 200-day moving average. The 14-day RSI is moving higher as it attempts to break free from a bearish regime.
Finally, Gold is now overbought after making a strong move from support. The “yellow metal” is above the rising 50-day moving average and the, still declining, 200-day moving average. The 14-day RSI is now above 70. Should Gold pullback from current levels, we will look for a higher low to be established, ideally above the moving averages, to have confidence that a new uptrend is forming.
Will it hold? The VIX has moved back below the 20 level. Admittedly, this is an interesting development given that equities are choppy while Treasuries and Gold have an underlying bid to them. The question now is if the series of lower highs and lower lows will hold, or will there be a shift to a higher volatility environment? The jury is still out.
The CNN Fear & Greed Index remains in a “fear” position this week, moving to 33 from 38 last week.
Equity markets in the U.S. are searching for direction, as near-term trading remains choppy within the context of longer-term bullish trends. Underlying support for Treasuries and Gold has our attention and will become more compelling should equities break lower. Sentiment mirrors equity trends, as the VIX has moved below 20, but the Fear & Greed Index remains in a “fear” position.