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Key Points

  • S&P 500 Holds Near Record Levels
  • Small Caps Improve to Retake a Key Level
  • NASDAQ 100 Stalls, Loses Relative Momentum
  • Commodities Bulls Look to Reassert Position as Treasuries Fall
  • Sentiment Moves Toward Greed

Mid-Week Market Update – United States

The S&P 500 continues to trade near record levels as the new year begins, above the rising 50 and 100-day moving averages. Near-term support begins to come into play near 4,725, while stronger support for the bullish trend is near 4,550. Despite the record highs for price, the 14-day RSI remains in a divergence, making a lower high. The indicator is still in a bullish regime, and the divergence is only confirmed when the price breaks below important support levels.

The S&P Small Cap 600 begins the year by breaking above the resistance level that contained price for most of 2021. The 50 and 100-day moving averages are moving higher, a bullish development for the intermediate-term trend. Holding above 1,420 gives an edge to the bulls and puts the November highs in play. At the same time, the 14-day RSI is doing all that it can to break from a bearish regime after marking a positive divergence at the December 20thlow.

The relative trend remains bearish but is also showing signs of improvement. A break of the 50-day moving average would be a positive sign and would set the stage for an attack on the resistance level.

The NASDAQ 100 is trading near the top of the range that has been in place since early November. The rising 50-day moving average acted as support to some selling pressure yesterday, while the rising 100-day moving average is in line with a key price level in the 15,600 – 15,700 range. As with the S& 500, there is a negative divergence in play as the 14-day RSI has been making lower highs of late. However, the indicator is holding in a bullish regime for now.

The relative trend is choppy and has become a bit of a concern of late, breaking below the 50-day moving average. Losing support at the August and October lows would signify that the NASDAQ 100 has shifted to a lagging trend.

The 10-Year Note starts the new year by breaking down below the declining 50 and 100-day moving averages. The 14-day RSI has moved below the rising trend line that we have been highlighting and remains in a bearish regime, negating the potential momentum shift that we called out last week. The next support level is in line with the December 2019 lows which preceded the COVID rally in early 2020. Treasury bears are in the top position until the moving averages are reclaimed.

The Bloomberg Commodity Index continues to build on the comeback that we cited here last week, closing above the rising 100-day and declining 50-day moving averages. Closing above 101.50 would put the bulls back in control after taking a rest since the October peak. Ideally, we want to see a break of resistance coincide with the 14-day RSI moving into a bullish regime. The indicator has been making higher lows of late, increasing the odds that momentum is shifting to the bulls.

After finding support at the August low, the relative trend will have to overcome the declining 50-day moving average and resistance to reestablish a leadership role.

The U.S. Dollar Index continues to stall but has established a short-term support level near 95.60 that lines up with the rising 50-day moving average. The 100-day moving average is at the key 94.50 level. Above these price points, the trend remains to the upside, confirmed by the 14-day RSI, which is in a bullish regime.

Sentiment Check

The CBOE Volatility Index (VIX) has moved lower over the past week, trading to 16.91 from 17.54. Albeit slowly, “fear” continues to subside in the market, gradually eliminating bearish sentiment as a tailwind.

While the decline in the VIX has been gradual, the rise in the CNN Fear & Greed Index has been more rapid. This week the metric moved from 54 to 68 and is now in a “greed” position.

Take-Aways:

While the S&P 500 is holding near record levels to start the year, the biggest developments in the opening days of 2022 are the improvements in the Small Caps and Commodities as Treasuries begin to break down. These dynamics coincide with the NASDAQ 100 beginning to lose some upside momentum as this “growth” proxy trades in a relative consolidation. From a sentiment perspective, there is a shift toward “greed” that should be watched but is not yet at levels that call for a contrarian view.

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.