Strong Rallies Across Equities,
but Now the Real Work Begins

by | Feb 2, 2022

Key Points

  • S&P 500 Pushes Back to a Key Level
  • Small Caps Bounce, Momentum is Weak
  • NASDAQ 100 Still Has a Lot of Ground to Recover
  • Commodities Break to New Highs
  • Sentiment Is Still Contrarian Bullish

Mid-Week Market Update – United States

The rally to which we were open in this Note last week has played out over the past three days, putting the S&P 500 in a position to do battle with the key 4,550 level. The recent rally also brings the 100-day moving average, which sits below the 50-day moving average, back into play. Above these three resistance points, the bulls will have regained control of the situation.

The 14-day RSI has moved higher from oversold levels but has yet to make a higher high since becoming extremely overbought in November.

We remain open to the idea that the S&P Small Cap 600 can rally back to the declining moving averages. This will remain the case if last week’s lows hold. However, we want to see stronger momentum to become more excited about the space. So far, the 14-day RSI has made a weak attempt at pulling itself off the mat and remains in a downtrend.

The relative trend remains bearish, below the declining 50-day moving average and trading near one-year lows.

*Please see our Small Cap Deep Dive note published today.

For the NASDAQ 100, the bulls have staged a strong comeback, which we discussed as likely in these pages last week. There is still scope for further upside to the declining 50 and 100-day moving averages. From there, the situation can be reassessed. Breaking above 15,500 will reestablish control for the bulls. As with the Small Caps, momentum is not overly compelling; the 14-day RSI remains in a downtrend.

On a relative basis, the NASDAQ 100 remains an underperformer. The ratio is below resistance and the declining 50-day moving average.

The 10-Year Note has come under renewed pressure in the near term as equities have rallied. The Note is below support at the $128 level. Our view has been, and remains, that the past of least resistance lower if the price is below the moving averages. The 14-day RSI is in a bearish regime, confirming our view.

While stocks have staged a strong rebound over the past three days, Commodities did not need to. They never wavered.  The Bloomberg Commodity Index is trading near one-year highs, above the rising 50 and 100-day moving averages. Support is at the breakout level, near 106. Momentum confirms the bullish price trend as the 14-day RSI is overbought.

The relative trend is also bullish, above the rising 50-day moving average and the October high.

Sentiment Check

The CBOE Volatility Index (VIX) has moved below 30 and below the 10-day moving average after the sharp spike that we noted as a contrarian bullish signal last week. While the index has moderated in the near term, we note that the moving average has been carving out higher highs and higher lows of late.

Despite the strong rally in equities, the CNN Fear & Greed Index remains in a fear position and is lower than the levels seen last week. The reading has moved from 37 to 34.

Take-Aways:

Stocks in the U.S. have moved higher over the past three days. While this is an encouraging sign, we note that there is still much work to do for the bulls to reclaim control. Away from equities, the 10-Year Note remains under pressure, and odds favor lower prices. Commodities never wavered in their uptrend despite weakness in other risk assets. Finally, sentiment remains more bullish than bearish, lending a contrarian tailwind to equity prices.

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.