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Take-Aways:

After a four-day rally, the bears let us know they are still in the match. Trends in the equity market can be described as neutral with a bearish bias; the three major averages trade below their 50 and 200-day moving averages but above their respective June lows. There are signs that downside momentum is waning, but we need to see the index hold above the moving averages while volatility subsides to make a stronger case for a lasting rally. Commodities have held support and maintain bullish absolute and relative trends. Treasuries continue to trade under pressure.

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Mid-Week Market Update – United States

After an impressive four-day rally, the S&P 500 gave back a sizable portion of those gains in yesterday’s trading. The index closed back below the 50-day moving average but remains above the June lows for now. The 14-day RSI is doing all that it can to hold above the 40-level, a sign that bulls are trying to arrest downside momentum. These dynamics keep the trend neutral with a downside bias. Bulls need to push the index above the moving averages to take control.

The S&P Small Cap 600 remains below the 50 and 200-day moving averages. Support is near the June lows, which are still in play with the index below the moving averages. The 14-day RSI is wrestling with the 40-level after becoming overbought in August.

The relative trend remains neutral, oscillating around the 50-day moving average while holding below the key October/November peaks.

The NASDAQ 100 also closed below the 50 and 200-day moving averages following yesterday’s weakness. Support remains near the June lows, a key level for the bulls to defend. However, until the moving averages are regained, it is hard to make a case for much upside traction. The 14-day RSI is now testing the 40-level once again.

The relative trend remains bearish below the 50-day moving average.

The 10-Year Note continues to trade heavy as rates move higher. The Note is below the 2018 lows and the now declining 50-day moving average. Both metrics are well below the 200-day moving average. As with the equity markets highlighted above, the June lows are still in play. The 14-day RSI is nearing oversold levels in a bearish regime.

The benefit of the doubt remains with the bulls in the Bloomberg Commodity Index after it held at the 50 and 200-day moving averages. There is a price-based support zone between 106 and 110. Above these levels, the odds favor an attack on the June highs. The 14-day RSI is holding in a bullish regime.

The relative trend is above support and the 50-day moving average, keeping odds in favor of outperformance.

Sentiment/Volatility Check

The CBOE S&P 500 Volatility Index (VIX) spiked higher yesterday to reclaim its 10-day moving average, which is to be expected with carnage in the equity market. However, what we have found to be most interesting is the persistence of the index. It has remained above 20 for most of the year. Bulls want to see the VIX consistently below 20 to have confidence that rallies can be maintained.

ATRs remain elevated across timeframes as well. The short and intermediate-term metrics are holding above key support levels. The longer-term metric remains in a steady uptrend from the November lows.

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