S&P 500 Momentum Report

An overnight drop in the S&P500 may be attributed to growing inflation expectations, as the 10-year breakeven rate surged higher despite the disappointing jobs report last week. Investors seem to look past the jobs report and continue to place their focus on the inflation narrative with rising commodities prices and chip shortages in play. Concerns of higher inflation may weigh on growth stocks, considering that much of their value may come from future earnings. The 10-year yield will be one to watch. A strong rebound last Friday, together with a continued uptick yesterday, marks investors’ expectations that inflation will come eventually. The US Consumer Price Inflation (CPI) figure and Producer Price Index (PPI) ahead this week will be in focus, with investors’ belief in a ‘transient’ rise in inflation put to the test.

The S&P 500 sees late-night selling towards the second half of the trading session, with a bearish Marubozu candlestick wiping off much of Friday’s gains. A surge in VIX index indicates risk-off sentiments overnight, a reversal from Friday’s optimism. The VIX is currently testing its consolidation resistance at 21.42 level, an upward break may translate to more downside action for major indices. For the US500 index, an upward-sloping trendline marks resistance at potentially the 4,250 level. Key support in the near term to look out for may be at 4,130, from which prices have rebounded on two previous occasions in coincidence with the Fibonacci 161.8% extension level.

Sector performance

From the sector performance, one may find investors sticking to the reopening theme with the likes of energy, materials, financials and industrials sectors delivering stronger performance on a 1-week basis. In particular, the strong performance in the energy sector may be due to catch-up growth from their lacklustre performance a week ago and rising energy prices. Having the strong earnings catalyst out of the picture, investors may be shifting their focus towards economic reopening and inflation uncertainties. This may trigger a shift in sentiment away from growth stocks, whose performance is more susceptible to higher yields, towards cyclicals.

Sector ETFs summary

Top 15 winners and losers

Top stocks by sectors

US Fang stocks

Momentum stock studies

Note: We have selected various inputs to screen for stocks with the strongest positive momentum. The logic behind the screener is that if any stock passes all these momentum screens, there is a higher probability that they will continue on the current trajectory in the short-term. The idea of buying high and selling higher is key here.

Screening for the strongest stocks in the S&P 500 will require a stock price to: 1) be above the 20-day moving average; 2) be above the 50-day moving average; 3) be above the 100-day moving average; 4) price has closed above the upper Bollinger band.

Deere & Co (DE) hitting all-time high

Deere & Co (DE) has been riding on the tailwind from elevated commodities prices. Prices have recently broken out of its consolidation to reach an all-time high, with a bullish crossover formed on the MACD indicator validating the bullish momentum ahead. That said, this is one to watch for the risk-off sentiments hitting markets yesterday. Key support near-term may potentially be at 380.00 where prices remain supported on three previous occasions, in coincidence with the 20-day MA.