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Key Point

  • Small Cap Discretionary on the Verge of a Relative Breakout
  • S&P 600 Trades to New All-Time Highs
  • Will the S&P 500 Break to New Highs as Well?
  • Crude Oil Provides a Tailwind for the Bullish Energy Trend
  • Sentiment is Not Greedy with Stocks At/Near Record Levels

Chart in Focus

As the S&P Small Cap 600 traded to a record high yesterday, seven of the eleven small cap sectors made 21-day highs relative to the S&P 500. Of those seven, the Consumer Discretionary sector has our attention. The group traded to a new absolute high, above the rising 50-day moving average. On a relative basis, Small Cap Discretionary is on the verge of breaking from a short-term consolidation after regaining its 50-day moving average.

Mid-Week Market Update – United States

The S&P 500 continues to knock on the door of new all-time highs, trading above the rising 50 and 200-day moving averages. The former has been support to short-term pullbacks of late. Price-based support remains in the 4,100 area, then near 3,800 below that.

Momentum is in a bullish regime, and we note that the RSI has not been oversold in more than a year. Ideally, we want to see a new high for the index confirmed by the RSI to signal that upside momentum remains strong.

The S&P Small Cap 600 traded to a new high yesterday, breaking from the consolidation that has been in place since the beginning of March. The 50-day moving average has acted as support during the consolidation and is now moving higher once again. Price-based support remains near the bottom of the consolidation, around the 1,300 level. The rising 200-day moving average is well below current levels. The 14-day RSI has also broken higher from a consolidation, but we want to see overbought levels to confirm strong upside momentum.

On a relative basis, Small Caps have regained the 50-day moving average as they continue to move higher.

The NASDAQ Composite Index remains in the choppy consolidation that has been in place since the middle of February, oscillating around the 50-day moving average but remaining above the rising 200-day moving average. The 14-day RSI is in the middle of the range, confirming the price action.

Relative to the S&P 500, the NASDAQ is testing the declining 50-day moving average from below. The series of lower highs and lower lows remains in place, as the ratio trades below short-term resistance.

The 10-year Treasury Note continues to build a base above the 2019 highs, which should continue to provide support in the near-term. The 50-day moving average is beginning to round higher, but the Note remains well below the declining 200-day moving average. Should support continue to hold, we look for a break of the $134 level to signal that a new uptrend is beginning.

Thus far, upside momentum has been elusive. The 14-day RSI is in the middle of the range and has not been able to break above 60 during rally attempts.

Crude Oil has moved to a new high, breaking from the consolidation that has been in place since the beginning of March. The 50-day moving average has been defining the near-term trend and acting as support to pullbacks in price.

Coincident with the breakout in Crude, is a breakout for the S&P 1500 Energy sector. Here too, the 50-day moving average has provided support and is moving higher.

Sentiment Check

The VIX continues to trend lower, remaining below the 20 level, as the S&P 500 pushes toward new highs. Despite the continued move to the downside, there is still room before the Volatility Index reaches the lows that defined trading for much of 2018 and 2019.

The CNN Fear & Greed Index is solidly neutral, at a reading of 50. This is up from the Fear position of 40 that was seen last week. Even though the S&P 500 is on the cusp of trading to new highs, this metric is not flashing a warning sign of excess greed on the part of investors.

Take-Aways

The S&P 600 traded to a new high this week and the S&P 500 is within striking distance of the same. Despite this dynamic, sentiment is not flashing a warning of excess greed in the market. Crude Oil’s breakout out is a tailwind for the Energy sector. Treasuries remain in a consolidation, $134 is the key level for the 10-Year Note.

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.