Equities Fade and Commodities
May Be Ready to Move Again

by | Apr 13, 2022

Key Points

  • S&P 500 Continues to the Downside After Failing to Breakout
  • Small Caps Tiptoe to the Edge
  • NASDAQ 100 Continues to Disappoint
  • The 10-Year Note Finds the 2018 Lows
  • Commodities Beginning the Next Leg of the Trip?

Mid-Week Market Update – United States

The S&P 500 closed below the 50-day moving average after the 100-day moving average was lost last week. There is a small support shelf near 4,400, but 4,200 remains the key level for equity bulls. While the current trend is neutral, there is an edge to the bears with the index below the moving averages after failing to hold above the 4,600. Essentially, the bulls were given a chance to run with the ball, but they fumbled it.

The 14-RSI confirms a neutral trend with a bearish bias as it sits in the middle of the range, unable to hold above 60.

The S&P Small Cap has once again walked to the edge of the cliff, testing support near 1,260 below the 50 and 100-day moving averages. Should support give way, the bears would be in control of the trend with a fair amount of running room. The 14-day RSI is holding in a bearish regime.

The relative trend is also bearish despite a small bump to the upside yesterday. The ratio is below the 50-day moving average and price-based resistance.

After failing to breakout above 15,100 and the 100-day moving average, the NASDAQ 100 has moved below the 50-day moving average. This gives an edge to the bears who ultimately want to push the index below 13,100 to take control of the trend. The 14-day RSI lends a momentum confirmation to the bearish tilt as it hold below the 60 level.

The relative trend is bearish, below the declining 50-day moving average.

The 10-Year Treasury Note remains in a steep downtrend, well below the 50 and 100-day moving averages. There is a zone of support at the 2018 low, between $118 and $120. The RSI in a bearish regime.

We remain open to the idea that the inverse relationship between equities and treasuries that persisted during the disinflationary era that began with the Asian Financial Crisis (1997) and collapse of LTCM (1998) may be shifting. This largely hinges a move to more inflationary environment.

The Bloomberg Commodity Index is trying to work higher after a pause that refreshes. The index is in a bullish trend, above the rising 50 and 100-day moving averages. The trend is confirmed by the 14-day RSI holding in a bullish regime.

Finally, Commodities continue to outperform equities as the ratio moves higher from the 50-day moving average.

Sentiment Check

The CBOE S&P 500 Volatility Index (VIX) continues to rebound, pulling the 10-day moving average higher. Since November, the has been an upside bias to the VIX, as can be seen by the linear regression line that we have added to the chart (black). This points to a generally rising level of fear in the market that confirms much of our Intermarket work.

At current levels, the VIX is not providing a signal in either direction.

Take-Aways:

Last week, we noted that the equity bull case was becoming harder to make, and there is nothing that has changed in the last five days of trading that would cause us to alter that view. Commodities remain the most bullish trend across asset classes and may be on the verge of a continuation. Treasuries are the most bearish trend, and we continue to view a shift in equity/treasury correlations as a risk to investors.

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.