- S&P 500 and NASDAQ Test their 50-Day Moving Averages
- Small Caps Remain Trapped in a Consolidation
- Treasuries are not Seeing a Haven Bid as Stocks Fall
- New Highs for the Bloomberg Commodity Index
The S&P 500 is dancing with the rising 10-week moving average and closed slightly below it on Friday. While many are watching this measure of intermediate-term trend as a hard line in the sand, the moving averages is an area of interest. Looking at the weekly chart below, there have been a few instances where the index trades below only to rebound.
Taking a step back, the index is in an uptrend, with rising 10 and 40-week moving averages. Support is in the zone between 4,000 and 4,200. The 14-week RSI is no longer overbought. Odds favor a continuation of the uptrend for the S&P 500 if those price-based support levels continue to hold.
The S&P Small Cap 600 closed between the declining 10-week moving average and the rising 40-week moving average as it continues to trade in a consolidation. The 14-week RSI remains in a downtrend and in the middle of the range, confirming the price action of the index.
On a relative basis, Small Caps remain in a bearish short-term trend, below resistance.
At the sector level, Small Caps were a mixed bag last week and did not provide much of a thematic message:
- Telecommunication Services – best performer on the week, trading in a consolidation.
- Energy – continuing higher from support.
- Materials – breaks the short-term uptrend, opening the door to a test of support.
- Utilities – worst performer on the week, testing support.
The NASDAQ Composite Index is also testing the rising 10-week moving average. Here too, all eyes are on this level of interest but the key to the uptrend are the price-based support levels that we have been highlighting, namely 14,200 and then 13,000. The 14-week RSI remains in a bullish regime but is not overbought.
On a relative basis, the NASDAQ remains an outperformer in the near-term. The ratio is holding above an important support zone, keeping the odds in favor of continued leadership and a test of the early 2021 highs.
U.S. Fixed Income
It is not only the S&P 500 that is testing an important level of interest. The 10-Year Note closed lower once again last week after being rejected at the 10 and 40-week moving averages. The Note is now testing the rising trend line from the March lows while the 14-week RSI moves to the downside and is in a bearish regime.
This is an interesting development because we would think that the recent selling pressure in equities would lead to haven buying of the 10-Year Note. The fact that it has not supports the view that we expressed on Friday that there are signs of increasing risk appetite in the market.
Over the past week, there is not much that has changed across the curve. At the short end, yields remain rangebound with a slight upside bias. At the long end, there is a breakdown in process for the 30-Year yield which is something that we are now watching closely for signs of a flattening curve.
The Global Dow remains in a consolidation and is also testing the 10-week moving average from above. At the same time the uptrend from the March 2020 lows is in the process of being breached. The 14-week RSI is in the middle of the range, confirming the consolidation.
On a relative basis, the Global Dow remains below resistance but is showing signs of stabilization. A move above resistance would be another datapoint in favor of increasing risk appetite.
The Bloomberg Commodity Index traded to a new high last week before reversing to close near the low of the weekly range. The candle stick enthusiasts will note that last week’s pattern was a “shooting” star that could have bearish connotations should there be follow through this week. For now, the index remains in an uptrend, above the 10-week moving average and support. The 14-week RSI is breaking a short-term downtrend, keeping momentum to the upside.
The relative trend is perhaps more interesting. Commodities are on the verge of breaking out relative to the S&P 500.
Within the commodity complex, there is an interesting dynamic playing out where the “risk-on” groups (Industrial Metals and Energy) are trading to the upside, while the “risk-off” group (Precious Metals) is under pressure.
- Precious Metals – back under pressure within the downtrend.
- Industrial Metals – holding support at the breakout level.
- Agriculture – sloppy consolidation.
- Energy – still rebounding after a successful test of support.
The U.S. Dollar Index is trying to move higher and has retaken the key 93 level along with the 10-week moving average but remains in a consolidation. The 14-week RSI is in the middle of the range, confirming the price action.
Near-term pressure in the equity market persists, sending the major averages to important levels of interest within their prevailing trends. The specific areas of interest are the 10-week (50-day) moving averages, and with so many investors watching them, it would not be surprising to see them undercut to shake out the weak hands. Thus far, the selling in the market has been orderly and has not led to a flight to haven assets such as Treasuries, which are also under pressure in the near-term.