Key Points

  • Stocks Remain in Bullish Trends with Bullish Momentum
  • There Is a Key “Line in the Sand” for Small Caps
  • 10-Year Note Continues in a Bearish Trend
  • Commodities Hold Support Again this Week
  • Bullish Sentiment Moderates

Mid-Week Market Update – United States

The S&P 500 remains in the small consolidation that began on November 5th as our “pause that refreshes” theme continues to play out. The index is above short-term support at the 4,630 level, with more important price-based support at 4,550. The 50 and 100-day moving averages are moving higher but are not a factor at current levels.

The 14-day RSI is in a bullish regime, but we note that Monday’s high was met with a lower high on the part of this indicator. A divergence like this becomes important only if a breakdown in price confirms it. So far, that has not played out.

The cruelest joke would be for the S&P Small Cap 600 to experience a false breakout after spending eight months in a consolidation. So far, that is not the case, as the pullback has remained above the 1,400-breakout level. The 50 and 100-day moving averages are rising, with the former nearing price-based support. The 14-day RSI had checked back to the rising trend line after becoming overbought when price traded to new highs and remains in a bullish regime.

The biggest issue that we continue to have with Small Caps is their inability to exhibit leadership characteristics on the breakout. The ratio remains in consolidation, hovering around the 50-day moving average below resistance.

The NASDAQ 100 Index has come under pressure over the past few days, but it is hard to make that case that much technical damage has been done. The trend is bullish, with price above the rising 50 and 100-day moving average as well as price-based support near 15,600. Momentum is in a bullish regime after the 14-day RSI recently became overbought.

The relative trend is fading from the early 2021 highs but remains above the short-term breakout level and the 50-day moving average. Above these two marks, the benefit of the doubt remains in the camp of outperformance, and we look for the highs to be tested.

The 10-year note remains under pressure as it trades below the declining 50 and 100-day moving averages as well as resistance at the 131 level. Our case has been, and remains, that the path of least resistance is to the downside if price is below the moving averages.

The 14-day RSI does provide a glimmer of hope for treasury bulls in the form of a bullish divergence. However, hope is not a strategy, and divergences only become important if price responds to them.

Last week we implored the Bloomberg Commodity Index to “hold the line.” So far, it is heeding our call with the index beginning to rebound from support at 102, which lines up with the rising 50-day moving average. The 100-day moving average is steadily grinding to the upside setting the tone for the larger trend. Thus far, the 14-day RSI has remained in a bullish regime, keeping momentum to the upside.

The relative trend is attempting to rebound from support, below the 50-day moving average. To have confidence that commodities are resuming their relative uptrend, we want to see the 50-day moving average taken out.

Under the surface of the commodity market, there are important tests playing out:

  • Copper – Tests and holds the downtrend line above support; bullish above $4.30.
  • Gold – Big failed breakout takes the yellow metal back into the range to test the rising trend line.
  • Lumber – Strong rally brings resistance onto play; above $800 is bullish.
  • Crude Oli – Checks back to support at $75, bullish above that mark.

Sentiment Check

This week, the CBOE Volatility Index (VIX) has seen a lift as stock prices have traded in a consolidation. The VIX is in the middle of the range that has been in place since March, not providing much information this week.

The CNN Fear and Greed Index moved from an “extreme greed” reading of 82 last week to a “greed” reading of 62 this week. At this level, there is less of a sentiment headwind than there has been for the past few weeks, but there is still more greed than fear in the marketplace.

The American Association of Individual Investors publishes a weekly survey of their members to find out if they are bullish, neutral, or bearish on the market. In this chart, we highlight the spread between those who are bullish and those who are bearish. We add a 13-week moving average (blue) and include the 13-week Z-Score. The data is as of November 17, 2021.

As with the Fear and Greed Index, this spread has moderated over the past week but remains above the 13-week moving average. At the same time, the 13-week z-score has moved below 1 and is trending toward zero. That being said, there is not much of a message in this week’s data.

Our “pause that refreshes” continues to play out for equities as the trend and momentum remains bullish across markets. Commodities as a group are testing/holding support, while the key commodities that we track are all testing important levels. The trend in the 10-Year Note is bearish until there is a move through key moving averages.

We would like to wish all our readers a Happy Thanksgiving! Thank you for taking the time to read our work every day. We Appreciate You!

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.