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Take-Aways

Major equity indexes have managed to recapture key long-term levels to the upside over the past week of trading. While these are bullish developments, momentum across the indexes has yet to confirm the early strength, making the recent rallies likely countertrend in nature. As both forward-looking and realized volatility remains elevated, it would be unsurprising to see chop-and-grind price action around the zones that have just been recaptured. Fixed Income continues to offer investors no reprieve from the equity volatility, and history suggests Commodities could likely have a bumpy road ahead from a seasonality perspective. For now, the prudent strategy across asset classes remains defensive.

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Mid-Week Market Update – United States

The S&P 500 has recaptured the 3,630 zone and the June lows to the upside over the past week of trading. Bulls will now look for an attack on the 50-day moving average at the 3,900 zone from below for a countertrend rally. RSI remains below the 50 zone, a level that the bulls want to see broken to the upside to having confidence that the recent rally could have legs.

The S&P 600 continues to oscillate around the 1,100-battleground zone as neither the bulls nor the bears have established control. A slight edge is given to the bears as price is below both 50 and 200-day moving averages. RSI remains in a bearish regime and is stuck in the middle of the range.

Relative to the S&P 500, the group remains above the relative breakout zone that we highlighted in our note last week and continues to be an emerging outperformer as the relationship trades above the ratio’s now-rising 50-day moving average.

The NASDAQ 100 has not been left out of the rally that its peers have experienced, as the index has managed to recapture the September and October lows of 2020 to the upside over the past week of trading. Here too, RSI remains in a bearish regime.

Relative to the S&P 500, the group is fighting hard to maintain relative support at the highlighted zone and the May relative lows of this year. More time is needed to establish a directional bias.

The 10-Year Treasury Note is making a stabilization attempt at the 111-zone after the selloff over the past two weeks of trading. Note that RSI has been able to break through the 45 mark to the upside, a level that bond bulls want to see taken out in momentum. The sheer distance between price and both 50 and 200-day moving averages leaves the door open for a countertrend rally back to the 114-breakdown zone, but we have yet to see such signs.

The Bloomberg Commodity Index is testing support once again at the 111-zone below both 50 and 200-day moving averages. Should this level give way to the downside, there is scope for long-term support at the 106-zone to be tested. Here too, RSI remains in a bearish regime.

Relative to the S&P 500, the group is trapped between relative resistance at the highlighted zone and the ratio’s rising 50-day moving average. For now, the relative trend is best interpreted as neutral, and more time is needed to establish a directional bias.

While the recent performance of the Commodity space has been a disappointment to some investors, it should be noted that the Bloomberg Commodity Index is trading in one of the seasonally worst-performing times of the year. From the chart prior, recent performance has been tracked closely in line with history. However, Commodities aren’t “out of the woods” just yet, as the remainder of October and November have historically been seasonally weak. Again, we are watching the 106-level in the index.

Sentiment/Volatility Check

The CBOE S&P 500 Volatility Index (VIX) has pared back some of the recent strength in trading below its 10-day moving average, but the series of higher highs and higher lows remains intact. As such, wider swings in the markets are well in-line with investor expectations at these levels.

Across timeframes of one, three, and six months, realized volatility in the S&P 500 remains heightened and trending higher. Here too, investors should be unsurprised about wider daily swings in the markets.

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