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Key Points

  • S&P 500 Breaks to a Lower Low for the Cycle
  • Small Caps Maintain Their Relative Position
  • The NASDAQ 100 Has Room to the Pre-COVID Peak
  • The 10-Year Note Craters Through Support
  • Volatility Continues to Move Higher

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Mid-Week Market Update – United States

After being rejected at 4,200, the S&P 500 has made a powerful move to the downside as it continues to trade below the declining 50 and 100-day moving averages. Additionally, the series of lower highs and lower lows remains in place, the textbook definition of a downtrend. There is room to the 3,400 – 3,500 zone.

The 14-day RSI is holding in a bearish regime, confirming the price trend.

The S&P Small Cap 600 was unable to hold above resistance and the 50-day moving average, succumbing to the indiscriminate selling that gripped markets late last week and early this week. The index remains below the declining moving averages and continues to make lower lows. Momentum confirms the trend as the 14-day RSI sits in a bearish regime.

Once again, we point out that the group has been resilient on a relative basis. The ratio is above the 50-day moving average as it continues to eye a breakout.

Add the NASDAQ 100 to the list of markets that followed a failed rally attempt with a lower low. The index is below the declining 50 and 100-day moving averages, and we now must consider that the door is open to the pre-COVID highs. The 14-day RSI remains in a bearish regime, keeping momentum to the downside.

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

The 10-Year Note has cascaded to the downside, breaking support at the 2018 lows after a hard rejection at the declining 50-day moving average. The Note is so far below the 100-day moving average that it is not a factor currently. The 14-day RSI is oversold, lending momentum confirmation to the bearish price action.

It seems that we have reached the stage in the bear market when even the strongest assets are targeted as investors look to raise cash. The Bloomberg Commodity Index failed to hold the breakout level and closed below the rising 50-day moving average. The group remains well above the 100-day moving average and in a bullish trend. The 14-day RSI is holding in a bullish regime, but we note that it failed to reach a higher high with price last week.

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 have made an aggressive turn to the upside as equities have been sold. Interestingly, the recent spike has thus far made a lower high. We also note that these spikes tend to provide extremely short-term trading opportunities for those who are nimbler.

However, we acknowledge that trading and investing in an environment where the VIX is over 30 is drastically different than when the VIX is in the teens.

As stocks have sold off, ATRs have expanded across time frames. All three metrics have moved to highs for the bear market.

Take-Aways:

Bear market bounces across stocks and treasuries have largely played out and given way to lower lows, much to the chagrin of the bottom-calling crowd. The bears remain in control of these trends, opening the door for the major averages to test their pre-COVID peaks. Sentiment mirrors market action as the VIX has made a powerful move to the upside while ATRs make new cycle highs.

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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.