- Weakness in Technology Extends Beyond the Biggest Stocks
- S&P 500 and NASDAQ 100 Fade after Rally Attempts
- The 10-Year Note Is Oversold at Support
- Commodities Remain Strong, Copper Is on the Verge of a Breakout
- Sentiment Improves Slightly
Chart in Focus
While many are quick to point out that weakness in the Technology sector is due to the largest names beginning to falter, it is interesting to note that the S&P 500 Equal Weight Information Technology Index is on the verge of breaking support, below the declining 50-day moving average. A breakdown would make the case that weakness in the sector goes beyond the biggest stocks.
Relative to the S&P 500, Equal Weight Technology has been trending lower since February. The ratio is below the 50-day moving average with downside potential to the May low.
Mid-Week Market Update – United States
The S&P 500 has started the week on the back foot. After a rally attempt from the 100-day moving average (blue), the index closed below it yesterday and remains below the, now declining, 50-day moving average. This has left another lower high on the chart after the index peaked in early September and keeps near-term resistance near the 4,380 level. On the downside, there is support near 4,250.
As we wrote last week, the 14-day RSI has not become oversold during the current pullback. This is a signal that there is not much downside momentum. Bulls want to see the index regain the 50-day moving average to have confidence that the uptrend is resuming.
The S&P Small Cap 600 continues to trade in a consolidation, swapping places above and below the flat 50-day moving average. Support is near 1,250, while resistance is around the 1,400 level. The 14-day RSI continues to confirm the consolidation, as it trades in the middle of the range. Nothing has changed since last week.
On a relative basis, Small Caps are holding above the 50-day moving average and price-based support. Above these two important levels, odds favor continued outperformance on the part of Small Caps. However, for the time being, outperforming appears to mean “less bad.”
Like the S&P 500, the NASDAQ 100 has not been able to hold last week’s rally from the 100-day moving average. The index has moved back below the important 14,800 level and the 100-day moving average while continuing to trade below the declining 50-day moving average. The 14-day RSI has been making lower highs since the beginning of September and maybe in the process of shifting to a bearish regime.
Relative to the S&P 500, the NASDAQ 100 remains below resistance and the 50-day moving average, keeping the odds in favor of near-term underperformance.
The 10-Year Note has traded down to support at the March/April lows, which we highlighted as likely in last week’s note and remains well below the declining 50 and 200-day moving averages. Support is being tested as the 14-day RSI trades near oversold levels. Given this dynamic, we would expect to see the Note stage a rebound from current levels. However, we find it hard to make a case for much upside until the moving averages are broken.
After trading to a recent high, the Bloomberg Commodity Index is taking a breather. Key support levels, should a pullback take hold, are near 100 and 98. The latter line lines up with the rising 50-day moving average. Above these levels, the odds favor a continuation of the uptrend.
The 14-day RSI confirms the bullish price trend as it trades near overbought levels and has not become oversold in over a year.
Within the commodity space, existing trends remain in place, but there is scope for a breakout in Copper:
- Copper – testing the declining trend line in the consolidation, on the watch for a breakout.
- Gold – in a bearish consolidation pattern, must hold $1,700.
- Lumber* – the rally resumes after a short pause, upside potential to $850.
- Crude Oil – continues to power to higher, running room to $90.
The CBOE Volatility Index (VIX) has moved lower over the past week. Over the course of the past year, spikes have been short-lived, and that appears to be the case with the most recent flare-up. For now, the index is not at a level that points to extreme sentiment in either direction.
The CNN Fear & Greed Index has moved to 32 from 27 last week and remains in a “fear” position. As with the VIX, the reading here is not at an extreme that would suggest taking a contrarian stance on the market.
After a rally attempt last week, the S&P 500 and NASDAQ 100 have pulled back below their 100-day moving averages. This type of action does nothing to change the stance that investors have shifted from a “buy the dip” to a “sell the rip” mentality. Small Caps are holding a small leadership position, but this appears to be because they have been “less bad” of late. Commodities remain one of the best trends on our radar, with the potential to get stronger should Copper break its consolidation to the upside.
Sentiment has improved slightly on the week but remains more fearful than greedy. It is not at an extreme that calls for a contrarian opinion at this stage.
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