Key Points

  • New Highs for the S&P 500 and NASDAQ 100
  • Small Caps Knocked on the Door but No One Was Home
  • 10-Year is Likely to Bounce in the Near-Term
  • Commodities Remain a Solid Leader but Does Anyone Care?
  • Sentiment is More Greedy Than Fearful

Chart in Focus

We have been hard-pressed to say anything constructive about the Utilities space, but there is a pocket of the sector that appears to be coming to life, Independent Power & Renewable Electricity. The index that tracks this group is undergoing a bearish to bullish reversal as it trades above the 50-day moving average and near-term resistance. At the same time, the relative ratio is making a turn to the upside above its own 50-day moving average.

Mid-Week Market Update – United States

The S&P 500 continues to grind to the upside, closing higher for the eighth day in the past nine. The breakout level at 4,545 is now near-term support. Above that, the path of least resistance is to the upside. Should support give way, the 50 (red) and 100-day moving averages should provide an opportunity for the bulls the buy the dip once again.

The 14-day RSI is in a bullish regime, but we would like to see this momentum indicator become overbought to add an extra confirmation to the bullish price trend.

Close but not yet. The S&P Small Cap 600 Index has pushed to the top of the months-long consolidation, only to leave an ugly black engulfing candle in place yesterday.  The 50 and 100-day moving averages are flat and pinching, just in case we needed another reminder of the fact that the current trend is sideways. Support is near 1,250, while resistance is around the 1,400 level. The 14-day RSI confirms the consolidation, as it trades in the middle of the range.

Relative to the S&P 500, Small Caps are testing the 50-day moving average while remaining above important support. Breaking these two levels would be a signal that the trend of underperformance that began in March is continuing.

The NASDAQ 100 traded to a new record high yesterday before giving back some of the gains during a bout of afternoon profit-taking. In case  the profit-taking, that began yesterday, morphs into a bigger pullback, we would expect the 50 and 100-day moving averages to prove a zone of support where buyers are likely to step in. The key, price-based, support remains near 14,500.

On a relative basis, the NASDAQ 100 is testing price-based resistance and the 50-day moving average from below. These levels must be broken to signal that this index is once again taking a leadership position. It is not there yet.

The 10-Year Note is trying to rebound after breaking below the near-term support level that we have been highlighting. Will the broken support level become new resistance during a short-term bounce? That is question that should be on the mind of those trading Treasury products. Investors with a longer-term view will note that price remains below the declining 50 and 100-day moving averages while the 14-day RSI is in a bearish regime. In other words, the 10-Year Note is in a confirmed downtrend. 

The Bloomberg Commodity Index also traded to a new high yesterday as the uptrend continues for this market leader (the relative trend is above the rising 50-day moving average). Our question is, does anyone care? Will large investors increase their allocations to commodities, or is it off the radar?

Momentum confirms the bullish price trend, with the 14-day RSI near overbought levels. Those wishing to make a bearish argument will point to the fact that the RSI is making a lower high, but if price is above 102, this divergence is not an issue in our view.

Within the commodity space, there is a bit of profit taking in play

  • Copper – Fading from the March highs, support in the $4.30 – $4.40 zone.
  • Gold – stuck in a consolidation, the bulls must hold $1,700.
  • Lumber – Upside to $850 if support at $650 holds.
  • Crude Oil – continues to power to higher, running room to $90.

Sentiment Check

The CBOE Volatility Index (VIX) is flat with the levels that we highlighted here last week. As the bullish trend in the equity market has persisted, investors have become less fearful throughout the year. Spike have been short-lived buying opportunities and we see that as being the case into the end of the year.

The CNN Fear & Greed Index remains in the “Greed” zone this week, moving from 62 to 70. A move above the 80 level would be a signal that looking for contrarian opportunities may be the best course of action. We are not there yet however.


New highs for the S&P 500 and the NASDAQ 100 line up well with our view that stocks, in the U.S., are likely to see a melt up into the end of the year. A breakout for Small Caps would be a welcome upside kicker but is not a prerequisite for strength in the larger indices. Commodities remain strong and continue to outperform. The 10-Year Note will likely see a near-term relief rally, but the path of least resistance remains to the downside.

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.