Key Points
- The S&P 500 Closes Below Support and the 40-Week Moving Average
- Small Caps Move to the Lower End of the Range
- NASDAQ Composite is No Longer a Leader
- Ten-Year Note Has Potential to Rally in the Near-Term
- Global Dow Holds Support at a Key Level
U.S. Equities
The S&P 500 closed below the 40-week moving average for the first time since June 2020 as the selling pressure that greeted the new year has not abated. At the same time, price support at 4,500 has given way. The 10-week moving average is now moving lower.
The 14-week RSI is moving lower, and the divergence that we highlighted in these pages two weeks ago has been confirmed, as the price has broken support. The RSI has also moved to its lowest level since October 2020.
After twice not being able to hold a breakout, the S&P Small Cap 600 has fallen to the low end of the trading range that was in place for all late year. The 10-week moving average is on the verge of crossing below the 40-week moving average for the first time since the onset of the pandemic. The 14-week RSI is moving lower and has broken support.
The relative trend is fading from resistance.
Not to be left out, the NASDAQ Composite Index moved through the 40-week moving average and price-based support last week. The 10-week moving average has also begun to roll over. Momentum is shifting in favor of the bears as the 14-week RSI breaks below 40 for the first time since March 2020.
Two weeks ago, we highlighted that the bears were beginning to take control of the relative trend. This week, we note that support has completely given way and the burden of proof is now squarely with the bulls.
U.S. Fixed Income
While we have had a downside bias to the 10-Year Note (upside bias to yields), if the price is below the 10 and 4-week moving averages, we would not be surprised to see some stabilization as the next support level, near $128, is tested. This test plays out as the 14-week RSI makes another higher low and has held above 30. It would not be a surprise to see a move back to the moving averages.
Note that the yield is holding above resistance at 1.75%. That is a key level to watch as price tests support.
The Global Dow has checked back to support at the breakout level as it was not immune to the selling pressure that attacked risk assets last week. The index has held above the rising 10 and 40-week moving averages, and the 14-week RSI continues to trade in a bullish regime. There is a divergence in play, but it has not been confirmed.
As we discussed two weeks ago, the relative trend is most compelling to us as it has begun to work higher. There is a bearish to bullish shift playing out that would be confirmed with a break of resistance.
Take-Aways:
Equities in the U.S. have begun to break key support levels shifting the burden of proof to the bulls. The NASDAQ Composite can no longer be considered a leading group (this has been the case for some time) as important relative support has finally given way. The Global Dow continues to captivate us on a relative basis.
Away from equities, the 10-Year Note has “bounce potential” as it tests support with a bullish divergence in play.
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