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Key Points

  • S&P 500 Tests the Underside of Resistance
  • Small Caps Break Through, Continue to Lead
  • The NASDAQ 100 Underperforms
  • The 10-Year Note Heads Lower…Again
  • Commodities Break Resistance

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Mid-Week Market Update – United States

The S&P 500 is knocking on the door at resistance again this week. 4,200 remains the key price level that bulls want to see breached. However, the index remains below the declining 50 and 200-day moving averages. 

The 14-day RSI did not become oversold on the recent move lower, but the indicator continues to trade in a bearish regime.

Unlike the S&P 500, the S&P 600 has broken above its price-based resistance level as well as the 50-day moving average. Before becoming overly bullish, we note that the index is below the declining 100-day moving average and must work through the large 2021 trading range. However, this is a step in the right direction. The 14-day RSI is trying to break from a bearish regime.

The relative trend is holding above the 50-day moving average. Breaking above the October/November highs would set the stage for further outperformance.

We have been vocal about the relative strength in Small Caps including on the most recent Who Charted? video.

The NASDAQ 100 remains below resistance at 13,000 and is not exactly threatening a breakout at this point. The index is below the declining 50 and 100-day moving averages, as the RSI sits in a bearish regime.

The relative trend is bearish, below the declining 50-day moving average.

The 10-Year Note is fading from the declining 50-day moving average after bouncing from the 2018 lows. It is likely that rallies are simply playing out within the context of a bearish trend. The 14-day RSI confirms this view as it sits firmly in a bearish regime.

The Bloomberg Commodity Index is in the process of breaking resistance as it trades above the rising 50 and 100-day moving averages. The 14-day RSI has held in a bullish regime during the consolidation. Above 130, odds favor a new leg of the uptrend is underway.  

Commodities remain in an uptrend relative to equities as the ratio trades above the 50-day moving average and near its recent highs.

Sentiment Check

The CBOE S&P 500 Volatility Index (VIX) and its 10-day moving average remain below 30 and are moving lower after both made lower highs on the most recent spike. There are no longer high levels of fear in the market, but the index remains elevated relative to what was seen for most of 2021.

The Average True Ranges that we track continue to roll over across the timeframes. However, it is too soon to say that the uptrends for 2022 have been reversed.

Take-Aways:

While the S&P 500 tests the underside of resistance, the S&P 600 has already broken through (in line with our views on better relative strength for small caps). The NASDAQ 100 remains a laggard. Treasuries are reversing lower from the 50-day moving average, likely causing a bit of sweat to form on the brows of those calling a bottom. Commodities are in the process of reasserting their uptrends.

This daily note is brought to you by Research by Potomac. Access the full Advisor toolkit and get a deeper look at the markets.

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.