Key Point
- A Breakout in a Pocket of the Health Care Sector
- New Highs for the S&P 500 and the NASDAQ
- The 10-Year Note is Testing Key Support
- Commodity Trends Favor Crude Oil
- Sentiment is Not Overly Complacent at Record Highs
Chart in Focus
While comments about the Health Care sector have been few and far between in our work, we must take note of the developments in the S&P 500 Life Sciences Tools and Services Index. This pocket of Health Care has broken to new highs on an absolute basis, above the rising 50-day moving average.
On a relative basis, the group has also broken out in the near-term and is above the, now rising, 50-day moving average. Odds favor a test of the relative highs.
Mid-Week Market Update – United States
The S&P 500 traded to a record high yesterday after breaking above resistance last week. The rising 50-day moving average has been key in defining the trend for the index, which remains well above the rising 200-day moving average. Near-term support is at the breakout level, near 4,250.
The 14-day RSI remains the only bearish datapoint on the chart, as it has failed to confirm the price highs that have been reached this week. This divergence would become important if the index breaks support and the 50-day moving average.
The S&P Small Cap 600 Index remains in a consolidation that has been in place since the middle of March, unable to gain traction in either direction. The fund is, so far, holding above the 50-day moving average and is well above the 200-day moving average. Price-based support is at the bottom of the range, near 1,300. The 14-day RSI is in the middle of the range, confirming the consolidation in price.
Small Caps are also in a range on a relative basis, holding below the flat 50-day moving average.
The NASDAQ Composite Index traded to a new high yesterday, above the 50 and 200-day moving averages as investors continue to rotate back into the “growth” themes within the equity market. Support moves up to the 14,200 level. After failing to become oversold during the consolidation, the 14-day RSI has moved into an overbought position, a signal that momentum is confirming the bullish price trend.
On a relative basis, we are now on watch for a break, up and out, of the consolidation that has been playing out since March. The ratio is above the 50-day moving average which is beginning to turn higher.
The story remains the same for the 10-Year Treasury Note. It is stuck between support at the 2019 highs (being tested now) and resistance at the $134 level. The note is below a flat 50-day moving average and well below the declining 200-day moving average.
The 14-day RSI is in the middle of the range, and it has held there despite the recent tests of support. Odds favor support continuing to hold in the near-term.
Looking under the hood of the commodity complex, we can see that Crude Oil continues to grind higher after trading above resistance at the $67 level. Copper has held at the top end of a near-term support zone, but the ensuing bounce looks feeble thus far. Gold remains under pressure, keeping support at the $1,680 level in play. Lumber is in a freefall, continuing lower after breaking the trend line from the March 2020 lows.
Sentiment Check
The CBOE S&P 500 Volatility Index (VIX) saw a slight uptick this week despite the equity market trading to record levels. Bigger picture, the trend in the VIX remains to the downside, with room to the levels of complacency that were seen in the 2017 – 2019 period.
Countering the declining VIX, the CNN Fear & Greed Index remains in a fear position. While it did move higher, from 32 to 43, this week, we find it interesting that this metric continues to signal a lack of exuberance with the S&P 500 at record levels.
Take-Aways
The overall trend in the equity market remains to the upside with the S&P 500 and the NASDAQ trading at record level. Despite this, there is not much in the way of overly bullish sentiment. While much has been made of the action in the Treasury market since the last FOMC meeting, the 10-Year Note remains in a range that appears likely to hold for the time being. Crude Oil remains the best of the key commodities.