Key Points
Chart in Focus
Breaking Down: The S&P 1500 Semiconductors Index is in the process of breaking down relative to the S&P 500. After making a high in February, the ratio has come under pressure, first breaking below the 50-day moving average (which is declining) and now breaking below the 200-day moving average. At the same time, there is a momentum shift taking place as the 14-period RSI is in the process of moving to the lower half of the range.
Continued weakness in this ratio will likely keep pressure on the Technology Sector as well as on the NASDAQ Index, which we highlight below.
Mid-Week Market Update – United States
The S&P 500 began the week under pressure, but a closer look reveals that weakness was, once again bought, as buyers stepped up late in the day yesterday to close the index toward the top of the range (inserted chart). The trend is bullish with the index trading above the rising 50 and 200-day moving averages. The 14-period RSI remains in a bullish regime. One flag is that last week’s price high was not confirmed by the RSI, which made a lower high. This divergence would become a concern if the index were to break support.
In the near-term, there is support in the 3,950 – 4,000 zone. Below that there is more important support at the 3,600 level, just below the 200-day moving average.
The S&P Small Cap 600 Index continues to test support provided by the rising 50-day moving average, as it trades in a short-term consolidation after making a high in March. The longer-term trend remains to the upside, with the index above the 200-day moving average. The 14-period RSI is in the middle of the range, confirming the consolidation but we note that it remains in a bullish regime.
On a relative basis, the Small Cap 600 Index is testing support at the 2019 consolidation. The recent pullback is most likely a pause after a strong run that began November and odds favor a resolution to the upside.
The Nasdaq Composite Index remains in a consolidation with a break to new highs continuing to be elusive. Yesterday, the index pulled back to the test the flat 50-day moving average before buyers stepped in late in the day. The rising 200-day moving average is in the the support zone near the September highs. The 14-period RSI is holding a bullish regime for now, but we note the series of lower highs since becoming overbought earlier this year.
On a relative basis, pressure is building as the NASDAQ continues to underperform the S&P 500 and is on the verge of breaking below the support zone that we have been highlighting. Note that the NASDAQ made a new 21-day relative low yesterday.
Sentiment Check
The S&P 500 Volatility Index (VIX) has turned slightly higher this week as the major markets in the U.S. have traded lower. In the near-term, the VIX is not at an extreme level that is sending a contrarian signal in either direction.
The CNN Fear & Greed Index is at a reading 51, down from 59 last week. The index is in a solidly “neutral” position. As with the VIX, there is not a contrarian view that can be discerned from the current reading.
Take-Aways
Trends remain mostly bullish in the U.S. for the S&P 500 and Small Caps. The NASDAQ has come under relative pressure and is on the verge of a breakdown. Importantly for the NASDAQ, especially for the Technology Sector, Semiconductors have broken down on a relative basis.
From a sentiment perspective, there is not a clear contrarian message in the VIX or in the Fear & Greed Index.