Stocks Still Seek
a Clear Direction

by | Mar 7, 2022

Key Points

  • The S&P 500 Trades in the Range but Momentum Is Fading
  • Small Caps Break Near-Term Relative Resistance
  • The NASDAQ Composite Lags Again
  • Ten Year Note Rallies, Yield Breaks Important Support
  • Global Dow Fades on an Absolute and Relative Basis

U.S. Equities

The S&P 500 closed lower on the week but remained in the range that we have been highlighting. Support is in the 4,200 – 4,300 zone, and resistance is near 4,550. The index remains below the 10 and 40-week moving averages, which could be an added stumbling block to rally attempts. 

The 14-week RSI continues to hold the lower bound of a bullish regime but is in a downtrend, signaling that bullish momentum has waned.

The S&P Small Cap 600 was also lower on the week as the index was rejected at the declining 10-week moving average while remaining below the 40-week moving average. Support near 1,210 continues to hold, keeping Small Caps in the range that has been in place for a year. The 14-week RSI is holding above the 40 level and has ticked slightly higher over the past few weeks.   

Relative to the S&P 500, Small Caps have broken above near-term resistance. Pushing through the peaks from October and November could set the stage for continued outperformance.

The NASDAQ Composite Index remains trapped below the 10 and 40-week moving averages, between support near 12,500 and resistance near 14,000. The 14-week RSI is below 40, a sign that momentum may be moving in favor of the bears.

The relative trend was also under pressure again last week. The ratio is below broken support (now resistance?) and has been making a series of lower highs and lower lows.

U.S. Fixed Income

The 10-Year Note rallied last week, likely benefitting from haven buying as geopolitical volatility persists. The Note moved above the 10-week moving average but remained below the 40-week moving average. Importantly, price has regained the $128 level. A move above $130 could signal that the bulls are taking control of the trend. We discussed this idea in our note last Wednesday.

At the same time, the yield has broken below support at the 1.75% level.

Global Equities

The Global Dow has begun to succumb to stress in the market, moving below the 10 and 40-week moving averages to test the bottom of the consolidation zone in the 3,800 – 3,900 range. Resistance is near 4,100. The 14-week RSI has been moving lower and will now test the 40 level.

The relative trend has faded from resistance, unable to break out once again. Until there is a clean break from the current consolidation, it is hard to make a case for outperformance on the part of Global stocks vs. their U.S. peers.

Take-Aways

While geopolitical risks persist from a headline perspective, the major U.S. averages and the Global Dow have not broken below key support levels yet. The more interesting story is under the surface in the U.S., where Small Caps are exhibiting better relative strength. At the same time, the NASDAQ Composite remains an underperformer. Away from equities, the rally in the 10-Year Treasury Note holds our attention, especially as it pushed the yield below support at 1.75%.

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.