The Bulls Are in Position
to Take Control

Rallies in the S&P 500 and NASDAQ 100 took those indexes through their 50-day moving averages, setting the stage for a potential run to their declining 40-week moving averages. Commodities rallied from the rising 40-week moving average as the secular uptrend remains in place. Treasuries continue to build a base at the 2018 lows, and we note that the strong rally in the high yield bonds could be a bullish tell for further upside in risk assets. Finally, continued weakness in the dollar could also be bullish for equities and commodities. The bulls are in a position to take control; will they capitalize?

U.S. Equities

The S&P 500 moved higher last week, reclaiming the 10-week moving average and the 3,900 level in the process. Above these two points, the countertrend rally to the declining 40-week moving average that we highlighted last week is still in play. The 14-week RSI has regained the 40-level and the declining trend line from the November highs.

Likewise, the S&P Small Cap 600 Index rallied through the 10-week moving average. The index still has work to do to clear resistance near 1,220 before an attack on the declining 40-week moving average can be contemplated. Momentum is improving, with the 14-week RSI regaining the 40-mark.

The relative trend continues to churn below resistance as it trades in a consolidation. The group remains an in-line performer for now.

The NASDAQ 100 completed the trifecta of strong performance for the major U.S. averages last week. The index has moved through the 10-week moving average and broken support, opening the door to a move toward the declining 40-week moving average. The 14-week RSI has moved above 40, a sign that momentum is improving for the index.

The relative trend continues to stabilize and will now need to break above resistance for us to begin to make a case for further outperformance.

U.S. Fixed Income

The 10-Year Note continues to hold support at the 2018 lows and the 10-week moving average. This base-building process is playing out below the declining 40-week moving average.

The yield is retreating from resistance near the 3.20% level. Until this level is broken, it is hard to make a case for a continued move higher in yield (lower in price for the Note).

Across the curve, rates remain in consolidation, with the long-end exhibiting a downside bias in the near-term. This bias continues to contribute to flattening/inversions in various parts of the curve. 

While we have noted the base-building process is playing out for the 10-Year Note, we also can see that the high yield may be in the early stages of the same type of basing activity. The iShares iBoxx HY Corporate Bond Fund (HYG) has staged a strong rally over the past three weeks to regain the declining 10-week moving average. Holding above this measure of the intermediate-term trend opens the door to an attack on the declining 40-week moving average. Such a move would likely be a tailwind for risk assets in general.

Global Equities

Even the beleaguered Global Dow managed to move higher last week. However, the index remains below the declining 10 and 40-week moving averages as well as resistance. On the most recent move lower, the 14-week RSI did not become oversold, but we note that it is still in a bearish regime.

The relative trend remains below resistance in a wide consolidation.

Commodities

The Bloomberg Commodity Index broke a five-week losing streak last week and held the rising 40-week moving average in the process. At the same time, the index remains above important support at the 106 level. Retaking the 10-week moving average could open the door to a run to new highs. We continue to give the benefit of the doubt to the long-term trend if 106 holds.

The 14-week RSI is holding in a bullish regime as it tests the lower bound of this regime near 40.

Across the commodity landscape, the metals continue to test support levels that the bulls must defend in the near-term. Agricultural is breaking support as the group remains under intense pressure. Energy continues to consolidate but has not broken the long-term trend from the 2020 lows.

U.S. Dollar

Last week we noted that a pullback in the U.S. Dollar Index would likely act a tailwind for risk assets, and that scenario has started to play out. The dollar reversed lower last week, and continued downside would be a welcome setup for equity and commodity bulls in the near term. However, it will take a break of support near 103 to state that the trend has reversed.