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Key Points

  • Are Hotels, Restaurants, and Leisure Sending a Message?
  • S&P 500 and NASDAQ 100 Snap Five-Day Winning Streaks
  • Small Caps Continue to Lag in the Near-Term
  • The 10-Year Note Finds Support at a Key Level
  • Sentiment is NOT Bullish

Chart in Focus

With much concern in the media about the Delta variant, it is interesting to note that the S&P 500 Hotels, Restaurants, and Leisure Index made a 52-week high on a closing basis yesterday. The group has been moving sideways since April but now may be in the process of breaking from its consolidation zone after holding support last week. At the same time, the 50-day moving average is beginning to move higher.

On a relative basis, this group is not out of the woods, but the improvement over the past few days should not be ignored. The ratio is moving through the 50-day moving average and made a 21-day high with yesterday’s strength.

Mid-Week Market Update – United States

The S&P 500 closed lower yesterday to snap a five-day winning streak. The index remains in an uptrend above the rising 50-day moving average, which has been the main guide to the trend since the index broke out decisively in November. Price-based support is at the 4,250 level.

The 14-day RSI is in a bullish regime, with pullbacks failing to move the indictor below the 40 level. The recent price highs did not produce a higher high for the indicator, but this divergence is simply a yellow flag unless support is broken. We continue to defer to the price trend.

The S&P 600 Small Cap Index continues to trade in a consolidation below the 50-day moving average and above the rising 200-day moving average. Price-based support is at the bottom of the consolidation zone, near 1,250. One interesting development is the shift in the RSI from bullish to bearish ranges over the past few months. After routinely reaching levels above 70, the RSI has not been overbought since March.

On a relative basis, Small Caps remain a laggard, trading below the declining 50-day moving average and resistance.

The NASDAQ 100 Index will be in focus today following earnings reports from Apple (AAPL), Microsoft (MSFT) and Alphabet (GOOGL) last night. This index also snapped a five-day winning streak yesterday but remains in an uptrend, above support at 14,000 and the rising 50-day moving average. The 14-day RSI is in a bullish regime despite a small divergence that is currently in play.

Relative to the S&P 500, the NASDAQ 100 is holding above the breakout level and the rising 50-day moving average.

After breaking above the key $134 level, the 10-Year Note met the declining 200-day moving average and promptly faded. Thus far, the pullback is finding support at that breakout level as the 50-day moving average continues to trend to the upside. Holding above $134 increases the odds that the Note will continue to work higher. Later today the Federal Reserve Open Market Committee will wrap up its July meeting, which could cause some volatility in the treasury market.

The 14-day RSI is in the process of shifting to a bullish regime but has yet to become overbought.

The S&P 500 and the NASDAQ 100 were not the only markets to break a winning streak yesterday. The Bloomberg Commodity Index closed lower for the first time in a week as well. As with the S&P 500, the 50-day moving average defines the trend for this commodity index and is likely to be support to a deeper pullback.

The 14-day RSI has left a divergence on the chart, failing to confirm the recent price highs.

A closer look at some of the key commodities on our radar reveals:

  • Copper – working higher from support but still in a consolidation.
  • Gold – turning lower within its downtrend.
  • Lumber* – bounce attempt from support is looking suspect.
  • Crude Oil – holding support at the breakout level.

*Note that Lumber is not a member of the Bloomberg Commodity Index.

Sentiment Check

The CBOE S&P 500 Volatility Index (VIX) is relatively flat compared to the levels seen last week. It is interesting that despite the rally in in the S&P 500 from last Monday’s lows, the VIX was not able to move meaningfully lower. Given this dynamic, it is hard to make a case that there are overly high levels of bullish sentiment in the market despite equities trading at/near record levels.

The CNN Fear & Greed Index ticked up to 26 this week, from 20 last week, and is in a “Fear” position. While no longer in the “Extreme Fear” zone, we do find it interesting that this metric remains at such low levels with the S&P 500 and the NASDAQ 100 having traded at record highs on Monday.

Take-Aways:

Despite lingering concerns about the Delta variant, the S&P 500 Hotels, Restaurants, and Leisure Index made a new closing high yesterday. The S&P 500 and NASDAQ 100 break their five-day winning streaks but remain in uptrends. We will hear from the FOMC today with the 10-Year Note testing a key support level.

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.