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Key Points

  • S&P 500 Breaks the 50-Day Moving Average
  • Small Caps Face a Key Support Test
  • The NASDAQ 100 is an Underperformer
  • Commodities Remain Above a Key Support Level
  • The 10-Year Note Breaks Lower

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Mid-Week Market Update – United States

After failing at the 200-day moving average and breaking below the 4,000 level, the S&P 500 closed below the rising 50-day moving average in yesterday’s trading. Equity bulls need to dig in at this level to avoid a trip to the June lows. There is some indication that this could happen as the 14-day RSI holds the 40-level, the lower bound of a bullish regime.

Likewise, the S&P Small Cap 600 has dropped from the 200-day moving average to test support and the rising 50-day moving average. This is a level that must be defended, or there is scope for a retest of the June lows. Here too, the 14-day RSI is holding a 40 to keep the indicator in a bullish regime.

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

Finally, the NASDAQ 100 has closed below the 50-day moving average after failing to reach the 200-day moving average during the recent rally attempt. Bulls want to see a rebound from here to avoid a test of the June lows in the near term. The 14-day RSI is testing the 40-level, another key point that the bulls need to defend.

The relative trend is moving below the 50-day moving average. The case for outperformance is difficult to make for now.

The 10-Year Note has traded below support at the 2018 lows below the 50 and 200-day moving averages. At the same time, the 14-day RSI has moved below 40 and is continuing to the downside. At best, there is a sloppy-based building. However, below support and the 50-day odds favor further weakness.

While the Bloomberg Commodity Index has been reasserting its uptrend since the middle of July, it was not immune to selling pressure yesterday. The index is above the 50 and 200-day moving averages with price-based support at 119. Above these levels, the bulls keep the benefit of the doubt. The 14-day RSI remains in a bullish regime.

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

The CBOE S&P 500 Volatility Index (VIX) continues to move higher and remains above the rising 10-day moving average. With the major U.S. index below key moving averages, volatility is likely to remain elevated in the near term. Bulls want to see the VIX consistently below 20 in order to have confidence that rallies can be maintained.

ATRs have continued to move higher over the past week as equities remain under pressure. While all three time-frames remain below 2%, we note that the 21 and 63-day metrics are turning higher from support. The 126-day ATR has yet to break the trend from the November 2021 lows.

Take-Aways:

The major averages in the U.S. has reached key levels that the bulls must defend to keep the short-term uptrend from the June lows in place. Failure to defend these levels, with volatility elevated, increases the odds that the lows will be tested. RSIs holding above 40 would point to support holding; a move below 40 would signal that momentum is back with the bears. For now, trends are neutral and risk management is a top priority should weakness persist from here. The 10-Year Note is breaking down, increasing the potential for further downside. Commodities remain above important support.

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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.