Key Points
- S&P 500 Has Long Lower Tails
- Small Caps Test the Lower End of the Range
- NASDAQ 100 Tests Lower Support, but that Relative Trend
- The 10-Year Note Has a Clear Line in the Sand, Commodities at Resistance
- Sentiment Is Contrarian Bullish
Mid-Week Market Update – United States
Monday’s low near 4,220 was achieved after the S&P 500 bears took control with a break of the 4,550, which we highlighted in this note last week. Monday’s low also provides a level that traders can use to manage risk if they are playing for a counter-trend rally, a possibility that we called out on the most recent Who Charted? We are also encouraged by long lower tails on the two most recent candles. This indicates that the bears tried to push the market lower, but the bulls were able to flip the situation. For now, we are open to the idea of a rally, but below the 50 and 100-day moving averages and 4,550, the bears are in control of the trend. This is confirmed by the 14-day RSI sitting in oversold conditions.
The S&P Small Cap 600 remains below the 50 and 100-day moving averages as it trades to the lower bound of the consolidation that has been playing out for nearly a year. The 14-Day RSI is in a bearish regime after a series of lower highs. There is potential for a move back to the moving averages in the near term, but the prevailing trends are neutral. Traders can manage risk on a break of support.
The relative trend remains bearish as it tests the declining 50-day moving average from below.
After the bears put the bulls on their backs last week with a break of support at the 100-day moving average, which is below the 50-day moving average, the NASDAQ 100 traded down to the April 2021 highs. The bulls appear to be mounting a comeback, as seen by the long lower tail on Monday. There is a scope for a rally back toward the moving averages, and Monday’s lows can be used to manage risk. The 14-day RSI is now oversold.
On a relative basis, the NASDAQ 100 continues to fade from broken support and the declining 50-day moving average.
The 10-Year Note has seen haven buying this week as equities have come under pressure. The line in the sand is clear at $128. This level must hold if the bulls are going to begin to mount a comeback and halt the bearish trend that we have been highlighting with the price below the moving averages. Below $128, there is a lot of room for the note to fall (yields move higher). The 14-day RSI is in a bearish regime, confirming the price trend.
The Bloomberg Commodity Index is testing the highs that were seen in October, above the rising 50 and 100-day moving averages. The 14-day RSI is trading near overbought levels as this resistance point comes into play.
The relative trend is playing out as we outlined last week, the break of the 50-day moving average marked a return to a leadership position, and the October highs have been breached.
Sentiment Check
The CBOE Volatility Index (VIX) has spiked above 30 this week as fear has begun to grip investors. At the same time, the VIX is well above the rising 10-day moving average. This sets the stage for a contrarian move higher in equities, and the levels that we have highlighted above can be used to manage risk.
The CNN Fear & Greed Index moved to a “Fear” position this week as the reading fell from 65 to 37.
Take-Aways:
If the bulls are going to mount a rally attempt, to turn the tides on what has been a rough start to 2022, there are clear lines in the sand from which a counterattack can begin. However, it is important to note that at this stage, rallies will be countertrend as the major averages are below their respective moving averages. At the same time, the 10-Year Note is dancing with key support while Commodities test resistance.
Sentiment is more likely to provide a bullish contrarian tailwind from current levels.
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