Key Points
Europe is on the verge of a breakout from a consolidation that has been in place for six years. Markets in the U.S. remain in an uptrend with the Nasdaq Composite Index at a key inflection point on a relative basis. Sentiment is more fearful than greedy but not at levels that call for a contrarian view.
Charts in Focus
Is Europe emerging from a six year consolidation? Investors can be forgiven if they have forgotten about Europe over the past few years. The STOXX Europe 600 Index has made no progress since peaking in April 2015. However, they may be well served to pay attention now as the index is in the process of breaking out of this long consolidation while the RSI moves toward overbought levels. The 50-day moving average (red) is on the cusp of breaking above the 200-day moving average (green).
Drilling down on some of the individual countries on “the continent”, we can see that Sweden is in a clear uptrend and has been a winner since surpassing the 2020 highs. Austria is on the verge of breaking to new highs along with Italy and France.
When investors think about investing outside the United States, it is easy to be attracted to the emerging growth stories in places such as China and India. However, just as we are seeing here in the States, with recent leadership from less exciting groups such as banks, energy, and transportation stocks, sometimes the less exciting regions of the world are worth having on the radar screen.
Mid-Week Market Update – United States
The S&P 500 started the week on the front foot, trading to a new record high on Monday before taking a pause yesterday to break a three-day streak of gains. The index is solidly above the rising 50 and 200-day moving averages and the RSI has held above the 40 level (the lower bound of a bullish regime) since the index broke out of a consolidation in November.
Near-term support comes into play in the 3,900 – 4,000 range with more important support at the September highs and the 200-day moving average near 3,600. We continue to see potential upside to the 4,150 level.
The S&P Small Cap 600 Index has been a clear outperformer since the release of positive news on the COVID vaccine front in November. The index is in a short-term consolidation but has found support at the rising 50-day moving average which is well above the rising 200-day moving average. The pullback in price has relieved an overbought condition for the RSI which remains in a bullish regime. On a relative basis (vs the S&P 500), small caps have found support at the pre-COVID consolidation zone.
The Nasdaq Composite Index remains in a consolidation within the ongoing uptrend from the March 2020 lows. The index gapped higher on Monday to regain the 50-day moving average and remains above the rising 200-day moving average. During the consolidaton, the RSI never became oversold, indicating that momentum remains to the upside. On a relative basis, the Nasdaq has been in a consolidation since September but is holding support.
Sentiment Check
The S&P 500 Volatility Index (VIX) has finally made a decisive break below the 20 level for the first time since before the pandemic. Arguably, this is a sign that investors are becoming more complacent as the equity markets in the U.S. continue to trade to the upside. However, the VIX is far from the persistent low levels which were witnessed throughout the majority 2017.
The CNN Fear & Greed Index is in a Greed Position at a reading 64, up from 45 last week.
The case can certainly be made that investors are becoming more greedy than fearful as markets trade to / near record levels in the U.S. and abroad. In the near-term these measures of sentiment are not at the point where a “contrarian” bearish view would be called for.