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Key Points

  • S&P 500 Has Room to the pre-COVID High
  • Small Caps and the NASDAQ Remain Weak
  • Treasuries Continue to Provide Zero Help
  • Commodities Come Under Pressure as Nothing is Immune
  • Volatility Is Trending Higher

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Mid-Week Market Update – United States

The bears remain in control of the trend in the S&P 500 as the index trades below the declining 50 and 200-day moving averages. Resistance moves down to the zone between 3,900 and 4,000 while the door remains open to a move down to the pre-COVID highs.

Momentum confirms the bearish trend as the 14-day RSI sits near oversold levels.

The S&P Small Cap 600 has its sights set on testing the pre-COVID highs near 1,020. The index remains below the declining 50 and 100-day moving averages, while the 14-day RSI is firmly in a bearish regime.

After leading for two months, the relative trend is now under pressure, testing the rising 50-day moving average.

The NASDAQ 100 also remains in a downtrend, below the declining 50 and 100-day moving averages, intent on reaching support at the pre-COVID highs. Momentum confirms the trend as the 14-day RSI has been making lower highs and sits in a bearish regime.

The relative trend is still bearish, despite a near-term rally attempt, trading below the declining 50-day moving average.

The 10-Year Note remains under pressure, trading below 2018 lows and the declining 50 and 100-day moving averages. While many have tried to call a bottom on bonds, we continue to wait for more evidence that a basing process is underway before becoming more constructive.

The 14-day RSI confirms the bearish stance, trading near oversold levels.

Our view on commodities has been clear for months; however, for the first time in a while, we see signs of slightly less bullishness in the near term. After a second failed breakout that produced a lower high on the 14-day RSI, the index has moved below the 50-day moving average. The next key level for the bulls to defend is the rising 100-day moving average. Failure at the 100-day moving average opens the door to further downside.

The relative trend remains bullish, above the rising 50-day moving average. Despite a near-term pullback, commodities are still “less bad” than the S&P 500.

Sentiment Check

The CBOE S&P 500 Volatility Index (VIX) remains above its 10-day moving average and the 30-level. These are conditions that have traditionally led to short-term rallies in the equity markets. However, the elevated level of the VIX speaks to an environment of heightened anxiety on the part of investors, where large swings are to be expected.

The regression line from the 2021 lows continues to move higher.

While the VIX looks at short-term volatility, we continue to see expansion across timeframes based on the ATRs that we track. On the one, three, and six-month lookbacks, the ATRs are moving higher, with all three above or near 2%.

Should these trends persist, investors should be open to the idea that the S&P 500 could test the pre-COVID highs.

Take-Aways:

The bears remain in control of trends across the equity and treasury markets. The biggest change this week is that commodities, which had been bucking the bearish trend, have begun to weaken as well. As we noted in yesterday’s episode of Who Charted?, nothing is immune in a bear market. Rallies are likely to be countertrend in nature as the door to the pre-COVID peaks remains open. Rising volatility points to increased anxiety in the market, still.

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.