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Key Points

  • Large Cap Growth on the Verge of Breaking to Record Relative Highs
  • Small Caps Fail to Capitalize on Late-August Strength
  • 10-Year Note Starts to Move Lower, No Breakdown Yet
  • Commodities Try to Hold Support at the Breakout Level
  • Sentiment is Unchanged on the Week

Chart in Focus

The S&P 500 Growth Index is trading near all-time highs, in line with the S&P 500 and NASDAQ 100 (see below). The steadily rising 50-day moving average has provided support to pullbacks and has done a good job of defining the underlying trend. Momentum confirms the bullish price action as the 14-day RSI is overbought currently.

The relative trend is what has captured our attention today as the ratio is on the verge of breaking above the highs that were seen more than a year ago. We have been making the case for growth over value and a move to new relative highs would only strengthen that view.

Mid-Week Market Update – United States

The S&P 500 is stalling in the near-term as it continues to trade in a steady uptrend, above the rising 50-day moving average. Short-term support moved up to the 4,470 level and there is more important support around the last pull-back, near 4,380.

The 14-day RSI is in a bullish regime, as it has been for all of 2021. A small divergence remains in place but will only become a concern if support levels are broken.

Thus far, the S&P Small Cap 600 Index has not been able to follow through on the strength that was seen toward the end of August by breaking to new highs. The index is stuck in the trading range that has been in place since March, above the 50-day moving average. Support is near the 1,250 level while resistance is near 1,400. The 14-day RSI is stuck in the middle of the range, confirming the neutral price trend.

On a relative basis, Small Caps remain in a downtrend vs. the S&P 500, below the declining 50-day moving average which appears to be providing resistance once again.

The NASDAQ 100 Index has emerged from the summer as the leading index in the U.S. market based on our work. The index is above the rising 50-day moving average which is in the support zone between 14,900 and 15,200. The 14-day RSI is confirming the bullish trend, having recently become overbought after breaking a downtrend line.

The relative trend for the NASDAQ 100 remains bullish as the ratio trades above the rising 50-day moving average. The door is open to an attack on the early 2021 highs.

After being trapped between the 50 and 200-day moving averages and trading around resistance, the 10-Year Note has made a move to the downside (sending rates higher). The note does remain in a consolidation for now and the 14-day RSI has not left bullish ranges yet. This is one that we continue to watch closely.

We remain of the view that the direction of the resolution of the current consolidation will have an impact on relative trends in the equity market. An upside resolution (lower rates) would likely be a tailwind for the NASDAQ 100 and the Growth themes in the stock market. A break to the downside (higher rates) would likely favor the Value and Cyclical areas. This view is unchanged from last week.

Like the Small Cap stocks, the Bloomberg Commodity Index has not been able to parlay recent strength into a meaningful uptrend. Commodities are pulling back from recent highs to retest the breakout level. The rising 50-day moving average would be the next key level on the downside, as it trades in the middle of the current consolidation.

The 14-day RSI is at neutral levels as it tries to hold the downtrend line after a brief move above.

Drilling down on the key commodities that are on our radar:

  • Copper – holding support but making lower lows, a break of $4 would be very bearish.
  • Gold – fading from the underside of the broken consolidation pattern.
  • Lumber* – held support, will the bounce gain traction?
  • Crude Oil – rebound from the support at the $67 level is stalling.

*Note that Lumber is not part of the Bloomberg Commodity Index

Sentiment Check

After a brief move below 17 last week, The CBOE S&P 500 Volatility Index (VIX) has traded slightly higher over the past few days as the S&P 500 as stalled in the short-term. In fairness, these small moves in both directions are noise and not proving much in the way of a contrarian datapoint.

The CNN Fear & Greed Index stands at 53, in line with the level seen last week and in a Neutral position.

Take-Aways:

As summer draws to a close and investors return to the markets, the prevailing trends that we have been following remain the same. The S&P 500 and NASDAQ 100 are in steady bullish trends while Small Caps and Commodities are stuck in their consolidations. The biggest development has been short-term weakness in the 10-Year Note but it has not been enough to break the range. All of this plays out while sentiment remains largely unchanged week-over-week.
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.