Key Points
- S&P 500 Rallies from Support, Will It Build on Strength?
- Small Caps Jump, Bullish Divergence in Place
- NASDAQ 100 Has Work to Do on a Relative Basis
- Commodities, Bonds, and the Dollar are also Stuck
- Sentiment Remains Fearful
Mid-Week Market Update – United States
The battle continues to rage for the S&P 500 as neither the bulls nor the bears have been able to maintain their position in the near term. The index found support near 4,550 and the rising 100-day moving average before staging a rebound yesterday. Recently, these strong rebound days have not seen much in the way of follow-through, and we want to see that dynamic change; holding above 4,630 would be a step in the right direction. The 14-day RSI is holding a bullish regime, so the benefit of the doubt remains with the bulls for now.
The S&P Small Cap 600 staged a strong rally yesterday but remains below the 50 and 100-day moving averages. There is a small bullish divergence in play as the 14-day RSI made a higher low on Monday while the price made a lower low. Now we want to see the index break above the moving averages and price-based resistance at the 1,410 level to have confidence that the bulls are in control of the situation. Until then, the trend remains neutral, and we are content to watch this battle from the sidelines as it relates to Small Caps.
The relative trend remains bearish until the 50-day moving average and resistance are overcome.
The NASDAQ 100 has seen a cluster of support do its job for now. The index staged a strong rebound from the 15,600 level that lines up with the rising 100-day moving average. Yesterday’s close was above the 50-day moving average, and now we want to see some bullish follow-through. The 14-day RSI is doing its part, holding in a bullish regime at the 40 level.
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.
It is not only the equity markets that have been choppy of late. The 10-Year Note also 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 highs of late. This momentum shift would be confirmed with a break of the 100-day moving average. Until then, let the battle rage.
The Bloomberg Commodity Index remains in a compromised position, for the time being, trading below resistance and the 50 and 100-day moving averages. The 14-day RSI continues to make lower highs, and while we can see some higher lows as well, the burden of proof is on commodity bulls.
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.
Add the greenback to the list of assets that are in consolidation as we move toward the end of the year. The U.S. Dollar Index has been stalling above the rising 50 and 100-day moving averages for nearly a month, 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. 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) is holding above 20, in line with the levels that we noted last week. We continue to view this as a product of the turmoil that has been playing out under the market’s surface. However, we want to see a sustained move below 20 to have more confidence that stocks can work higher into the end of the year.
The CNN Fear and Greed Index has moved to 32 this week from 26 last week and remains in a “Fear” position.
Take-Aways:
Asset markets are searching for direction, with many trading in consolidations, unable to find a higher gear. Yesterday’s strong move to the upside for U.S. equities was encouraging, but we have seen this movie before; there have been strong days, but there has been a lack of follow-through. While we maintain a bullish leaning, we want to see the indices build on yesterday’s strength. Consolidations are not limited to stocks, as the 10-Year Note, the Bloomberg Commodity Index, and the U.S. Dollar Index are also stuck in the mud.
Perhaps the bearish leaning to sentiment can offer a contrarian move to the upside for risk assets.
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