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Key Points

Mid-Week Market Update – United States

The S&P 500 is trading at record levels, bringing holiday cheer to investors giving the bulls the benefit of the doubt, as we have been writing on these pages. Near-term support moves up to the 4,700 – 4,725 zone. Then there is a cluster of support down to the key 4,550 level, which includes the 50 and 100-day moving average. The only issue that we can see on this chart is the fact that the 14-day RSI did not confirm the recent price highs. However, we would need to see a move below 4,700 before giving this divergence more than a passing mention.

The S&P Small Cap 600 remains a mess, trading in the consolidation, unable to turn the tides and shift to a confirmed uptrend. Yesterday’s trading paints a great picture of what the battle has been like for small-cap investors: a push to break out is halted, the index closed near the low of the day. Yes, the price is above the moving averages, and the bullish divergence that we cited last week is still in play, but we are hard-pressed to get excited until there is a clean breakout.

The relative trend remains bearish until the 50-day moving average and resistance are overcome.

The NASDAQ 100 has pushed to the top of the recent consolidation range, but the bulls have not been able to take control of the trend yet. However, they keep the benefit of the doubt with the price above the rising 50 and 100-day moving average and clearly defined support at the 15,600 level. The 14-day RSI has a negative divergence, like the S&P 500, but we are merely taking note. The divergence will only matter if support is broken.

The relative trend remains a chop-fest, below the 50-day moving average and resistance. These two levels must be overcome before we can state that the NASDAQ 100 has regained a leadership position.

While the S&P 500 has broken out, and the NASDAQ 100 is on the cusp, the 10-Year Note has not been able to gain much traction in either direction. Since September, the consolidation that has been in place continues to play out with the note back below the 50-day moving average, which is below the declining 100-day moving average. The 14-day RSI is in the middle of the range, confirming the choppy price action, but we note the series of higher lows of late. This momentum shift would be confirmed with a break of the 100-day moving average.

The Bloomberg Commodity Index is staging a comeback, regaining broken support and the 100-day moving average. Now the declining 50-day moving average will try to halt near-term progress. The burden of proof remains on the commodity bulls. We are content to watch this one play out before establishing a clearer view. This is especially true as the 14-day RSI remains in a bearish regime despite breaking the downtrend.

The relative trend has found support at the April low, but there is still a lot of work to do before we can call commodities a leading asset class.

The U.S. Dollar Index continues to stall above the rising 50 and 100-day moving averages, consolidating gains above the key 94.50 level. The 14-day RSI is moving lower, working off the overbought reading that was reached in late November but remains in a bullish regime. For now, this appears to be a pause after a strong move higher, keeping the bulls in control.

Sentiment Check

The CBOE Volatility Index (VIX) has moved lower over the past week, trading to 17.54. While this is certainly a sign that some of the “fear” in the market has abated. We note that the index has room to fall to the levels that were seen in October & November. For now, there is a slight tailwind from the VIX, but not something that we would lean on too heavily.

The CNN Fear and Greed Index has moved to 54 this week from 31 last week and is now in a “Neutral” position. 

Take-Aways:

Within the U.S. equity markets, the bulls retain the benefit of the doubt, but the best bet appears to be centered on the S&P 500. The NASDAQ 100 is knocking on the door of a new high (we think it gets there), but the question of outperformance remains. Small Caps are uninteresting to us until there is a clear break from the consolidation. Away from equities, commodities still have a lot of work to do to repair a damaged trend and, the Dollar remains in consolidation, as does the 10-Year Note. Perhaps clearer trends will emerge in the new year.