Key Points
- S&P 500 Closes at a Weekly Record
- Large Over Small Still the Better Bet
- 10-Year Treasury Wrestles with Support, Rates Move Higher, Curve Flattens
- Commodities Hold the Rising 40-Week Moving Average
- Dollar Remains Bullish but Is Stalling
U.S. Equities
That’s a record weekly closing high for the S&P 500 after a successful test of the 10-week moving average, which is trading above the rising 40-week moving average. The 14-week RSI is in a bullish regime but has yet to confirm the closing high for the index. As we noted last week, the primary trend remains bullish, and that will be the case until important levels are breached to the downside. In this case, those levels are the moving averages and price-based support at 4,300.
The S&P Small Cap 600 did manage to close higher on the week, but we are hard-pressed to make much of a bullish case. The index failed at the 10-week moving average and remains in the range that has been its home for much of this year. The flat 40-week moving average held as support but spoke to the long-term trend. The 14-day RSI failed to confirm the breakout attempt last month, and the group is breaking below support relative to the S&P 500.
All sectors of the S&P 600 were higher on the week:
- Energy – Holds support, best performing sector of the week but still a lot of work to do.
- Materials – Higher lows are encouraging, but we need to see a breakout to be interested.
- Telecommunication Services – Sloppy consolidation.
- Technology – Above support is bullish.
The NASDAQ Composite Index moved higher on the week as the 10-week moving average held as support above the rising 40-week moving average. The key price level at 15,200 also was regained this week to keep a short-term breakout in place. The 14-week RSI is holding a bullish regime, confirming the long-term uptrend. However, the relative trend is flat for now, and on the verge of a breakdown.
U.S. Fixed Income
For the 10-Year Note, the battle at support continues to wage after the declining 40-week moving average held as resistance. Our view has been that below the moving averages, the path of least resistance is to the downside (higher rates), but we are mindful that the series of higher lows on the part of the 14-week RSI is a sign that downside momentum is waning.
Additionally, there is a strong resistance for rates at the 1.75% level.
Rates moved higher across the curve last week, led by the 2-year treasury which is seeing the largest reaction to the Fed’s expected taper. The curve continues to flatten, with the 20-Year/30-Year spread remaining inverted.
Global Equities
The Global Dow rebounded to regain the 40-week moving average but remains below the 10-week moving average as it trades in the range that has been in place for most of the year. Momentum confirms listless trading as the 14-week RSI is also stuck in the middle of the range. The real story is in the relative trend, which continues to drift to the downside. Blindly allocating a portion of portfolios to foreign equities has been and remains a strategy that has been a detriment to investors.
Commodities
The Bloomberg Commodity Index is not going down without a fight, digging in at the rising 40-week moving average to keep the long-term trend to the upside. The index does remain below the 10-week moving average, which is declining, keeping the short and intermediate-term trends under pressure. The 14-week RSI is fighting hard to hold a bullish regime. The relative trend is holding below the breakout level. It is hard to justify an overweight position until this level is retaken.
Within the commodity complex, the main trends remain the same:
- Precious Metals – A lot of work is needed for the bulls to take back control.
- Industrial Metals – Under the rising trend line, below 460 the bears take the ball.
- Agriculture – Uptrend in place and May highs are still in play.
- Energy – Bearish below the 250 level.
The Dollar
The U.S. Dollar remains above the 94.50 breakout level and the rising 10-week moving average to keep the trend bullish despite stalling action for a third consecutive week. The 14-week RSI remains overbought, confirming price strength.
Take-Aways:
As we discussed last week, time frames matter. Stocks and commodities did all they could last week to maintain their prevailing long-term trends. From that perspective, the bulls hold the upper hand. However, all investors should have an eye on key levels and their risk management process if the flattening yield curve hints at a slowdown that impacts risk assets.
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.