Key Points
- Inflation Fears Taking a Toll on Retail?
- S&P 500, NASDAQ 100 Making Lower Highs and Lower Lows
- Small Caps Hold Their Range
- Commodities Are a Bright Spot in Asset Markets
- Sentiment Is More Fearful than Greedy
Chart in Focus
After a strong rally from the March 2020 lows, the S&P 500 Multiline Retail Index has broken below the 50-day moving average and the rising trend line. Many have opined that inflation fears may be taking a toll on the equity market. Perhaps that is the case here, but what is clear is that this former leader has broken trend and is now an underperformer. The ratio (vs. the S&P 500) is moving lower below the declining 50-day moving average.
Mid-Week Market Update – United States
The S&P 500 remains below the 4,380 level that we have been highlighting despite yesterday’s rally attempt. At the same time, the index is having difficulty with the 100-day moving average. Since making a high in early September, the S&P 500 has been making lower highs and lower lows. This dynamic has prompted us to wonder if the mindset of investors has shifted from “buy dips” to “sell rips.” That thought will be put to the test once again today.
One point for the bulls is that the 14-day RSI did not make a lower low this week with the index, leaving a small positive divergence in place. Moving back above the 50-day moving average (red) will be key in breaking the current short-term trend.
On an absolute basis, there is nothing new with the S&P Small Cap 600. This index remains in the range that has marked trading since March, as it oscillates around the flat 50-day moving average. Support is near 1,250, while resistance is around the 1,400 level. The 14-day RSI continues to confirm the consolidation, as it trades in the middle of the range.
On a relative basis, Small Caps continue to build on the recent bout of outperformance. The ratio is moving higher above the 50-day moving average, which is also turning to the upside.
The NASDAQ 100 Index has broken support at the 14,800 level and closed just below the 100-day moving average yesterday. Here too, the pattern since early September has been lower highs, and lower lows as rallies are sold. Unlike the S&P 500, there is not yet a bullish momentum divergence, as the 14-day RSI has been making lower lows with price. Retaking the 50-day moving average (red) is important to changing the near-term tide for the NASDAQ 100.
On a relative basis, the NASDAQ 100 remains below broken support (now resistance?) and the declining 50-day moving average.
The 10-Year Note made a rally attempt this week, but, as with the S&P 500 and the NASDAQ 100, this rally was sold. The Note is below the 50 and 200-day moving averages, both of which are falling. The 14-day RSI also remains in a downtrend despite a small bounce from oversold conditions. Given the lack of a momentum divergence, it would not be surprising to see the Note test the lows from April of this year.
On Monday, we noted strength on the weekly chart of the Bloomberg Commodity Index. This week has begun with commodities building on that strength, prompting us to move our near-term support levels up to 100 and 98. The latter lines up closely with the rising 50-day moving average. Strength is confirmed, by the fact, that the 14-day RSI has moved into an overbought position after breaking its downtrend. As a side note, the outperformance of Commodities, relative to the S&P 500, is a topic that was covered on the most recent edition of Who Charted?
Drilling down on the key commodities that are on our radar:
- Copper – still holding support in the consolidation.
- Gold – $1,700 remains the level that the gold bugs must defend.
- Lumber* – rally from support is stalling but retained the benefit of the doubt for now.
- Crude Oil – the key driver to commodity strength, continuing to trade to the upside.
*Note that Lumber is not part of the Bloomberg Commodity Index
Sentiment Check
The CBOE Volatility Index (VIX) is holding above the 20 level, having ticked higher by about 2 points over the past week. The series of higher highs and higher lows in the near term continues to play out, keeping our view that there are elevated odds of a spike in place.
The CNN Fear & Greed Index moved down one point to 27 this week and remain in a “Fear” position.
Take-Aways:
Over the past week, we have begun to wonder if the investors’ mentality has shifted to one of selling rallies. Both the S&P 500 and the NASDAQ 100 have been logging lower highs and lower lows over the past month; after yesterday’s rally, futures are pointing lower as of this writing. This all plays out as the 10-Year Note has a downside bias (higher rates), perhaps due to inflation fears, which are beginning to take a toll on pockets of the equity market such as Retail. At the same time, sentiment remains more fearful than greedy. On the bright side, commodities continue to move higher.
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