Key Points

  • S&P 500 Loses Upside Momentum
  • Small Caps Break Below the 50-Day Moving Average
  • NASDAQ 100 Is Failing Its Test
  • The 10-Year Note Moves Lower…Again.
  • Commodities Consolidate in a Bull Market

Mid-Week Market Update – United States

The S&P 500 closed below the 100-day moving average yesterday but is above the 50-day moving average, which is beginning to turn higher. Admittedly, the inability to hold above the 100-day as well as the February peaks is not a great look for equity bulls. Until these levels are overcome, the trend is neutral, in our opinion. A move below the 50-day moving average would be a sign that the bears are retaking control.

The 14-day RSI is below 60, the upper bound of a bearish regime, and was not able to become overbought During the March rally. This is a sign that recent strength lacks a momentum confirmation.

The S&P Small Cap 600 has closed below the 50-day moving average after being rejected at the declining 100-day moving average. The index remains in the consolidation that has been in place since March 2021, and support is near the 1,260 level. A break of this key level would put the bears in control of the trend. The 14-day RSI is breaking its recent uptrend.

After failing to break above the October/November peaks, the relative ratio has undercut the 50-day moving average and is moving toward one-year lows.

The NASDAQ 100 is now in the process of being rejected at the declining 100-day moving average after a strong rally from the March lows. The index remains above the 50-day moving average, keeping the trend neutral for now. The 14-day RSI is below 60, the upper bound of a bearish regime, and was not able to become overbought during the March rally.

The relative trend is holding above the 50-day moving average but below important resistance. As with price, this ratio is in a neutral position.

The 10-Year Note continues to move lower, extending further below the declining 50 and 100-day moving averages. The 14-day RSI has moved back to an oversold position, lending momentum confirmation to price weakness.

It is interesting to note that treasuries have not been providing much of a reprieve during bouts of equity weakness. This leaves us to wonder if the inverse correlation between equities and treasuries that have persisted during the disinflationary period of 1997–2022 is reverting to a positive correlation that often exists during inflationary regimes.

Speaking of inflationary regimes, the Bloomberg Commodity Index remains in bullish trend with recent price action likely serving as a pause that refreshes. The index is above the rising 50 and 100-day moving averages, and the 14-day RSI is in bullish ranges.

The relative trend also remains bullish, trading above the rising 50-day moving average.

Sentiment Check

The CBOE S&P 500 Volatility Index (VIX) has rebounded over the past week but is well off the highs seen in early March. Recent strength has pushed the VIX back above the 10-day moving average, but neither is in a position that warrants a contrarian view on the equity market. Our view that this sentiment metric is no longer a tailwind remains in place.

Despite receiving a new look, the datapoints inside the CNN Fear and Greed Index remain the same. The current reading of 46 puts the index in a neutral position. Here, too, sentiment is no longer a tailwind.

Take-Aways:

The title of last week’s note asked if this was a bear market rally or something more. Trading this week has not given us a good answer to that question, but it has made it harder to make the bullish case. The major indexes have not been able to hold/move above their 100-day moving averages while also not being able to muster much momentum to the upside. Unfortunately, treasuries have not provided much of a safety net, and we must wonder if a 25-year regime is coming to an end. All the while, commodities remain in a bullish trend and are likely still under-owned. These dynamics play out while sentiment is in a neutral position.

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.