Key Point
- More Signs of Strength in the Energy Patch
- Stocks in the U.S. Trade Near Record Highs
- Ten-Year Note and Gold are at Key Support Levels
- Copper Breaking Down?
- Sentiment is Not Providing Much Information
Chart in Focus
We have written a lot about strength in the Energy sector, and further signs of that strength can be seen in the S&P 500 Oil, Gas, and Consumable Fuels Index. After a brief trip below the 50-day moving average in April, the index is breaking out of a near-term consolidation, setting its sights on the pre-pandemic highs. The 14-day RSI is in a bullish regime, with room to overbought levels.
Relative to the S&P 500, the index is holding above the 50-day moving average and we look for a break above the March high to signal continued outperformance.
Mid-Week Market Update – United States
The S&P 500 continues to slowly grind higher, trading to record levels on Monday before fading slightly yesterday. The index is above the rising 50 and 200-day moving averages, though the latter is not really a factor to near-term trading. Price-based support is near 4,100. Below that level, the 200-day moving average, near 3,800 would come into play.
Momentum remains bullish, but we do note that the RSI has failed to make a higher high with price, leaving a divergence on the chart that would be confirmed with a break of support.
The S&P Small Cap 600 Index is holding above the rising 50-day moving average after trading to a new high on June 8th. Technically, the index remains in a consolidation after failing to follow through on last week’s high and near-term support is near the 1,300 level. Should that give way, the next logical level to test would be the rising 200-day moving average. The 14-day RSI is in bullish ranges but failed to confirm the price high last week by not making a higher high. This is a divergence that would be confirmed with a break of support.
On a relative basis, Small Caps are holding support at the 50-day moving average, which is flat for the time being.
The NASDAQ Composite Index remains in the consolidation that has been in place since the middle of February but is holding above the rising 50-day moving average. The steadily rising 200-day moving average is on the verge of meeting price-based support near 13,000. The 14-day RSI is rolling over after failing to reach overbought levels on the current rally attempt.
Relative to the S&P 500, the NASDAQ is holding above the 50-day moving average which is beginning to flatten out after declining since March. We look for a break of the interim relative highs to signal that the relative downtrend has reversed higher.
Later today we will hear from the Fed Chairman Powell after the FOMC wraps up their policy meeting. Naturally, all eyes will be on treasuries as investors parse Powell’s comments. The 10-Year Treasury Note in the U.S. has pulled back from the resistance level that we highlighted last week and found support at the rising 50-day moving average. The Note continues to hold above the price-based support at the 2019 highs. To have confidence that a new uptrend is forming, we want to see price break above resistance at the $134 level.
The 14-day RSI remains in the middle of the range, failing to gain much upside momentum on the recent rally attempt.
While interest rates will be top of mind during Powell’s comments, we note that economically sensitive commodities should not be ignored. Gold has pulled back to support at the 200-day moving average, with the rising 50-day moving average just below that. During the pullback, the 14-day RSI has remained in a bullish regime.
At the same time, Copper closed below the 50-day moving average after coming under intense pressure yesterday. Continued weakness would target the rising 200-day moving average, currently near the $3.80 level. The 14-day RSI has not become oversold but is breaking below support.
Sentiment Check
The VIX is flat to where it was trading a week ago and remains below the 20 level. Perhaps it is somewhat disappointing not to see the market’s “fear gauge” move lower as the S&P 500 trades at record levels but we are encouraged that the series of lower highs and lower lows continues.
The CNN Fear & Greed Index is also flat relative to last week. The index moved to 51 from 50 and remains in a Neutral position.
Take-Aways
Equities continue to trade near record levels, keeping longer-term trends bullish. Comments from Fed Chair Powell today and, more importantly, market reactions to those comments will be important. The 10-Year Note and Gold are sitting on important support levels. Should those levels hold, the case can be made investors are betting on a slower growth environment in the future. At the same time, Copper is in the process of breaking down after a strong bullish trend.
Sentiment is neutral and not proving much in the way of useful information.