S&P 500 Momentum Report

Market Price Levels

The S&P 500 continues to inch higher ahead of the Fed meeting, which may potentially set the market direction for weeks to come. Investors have been shrugging off inflation concerns for now, buying into the Fed’s stance of ‘transitory’ inflation as US ten-year Treasury yields attempt to recover from its three-month low. If the yields are able to stay below the 1.50% level, it may potentially translate to a positive environment for growth stocks. Much will lie on any signal of change to monetary policy outlook in the upcoming meeting.

A flat-lined MACD indicator suggests a softer tone in the market, with investors remain on hold. Near-term support may be at 4,238, its previous all-time high, while prices largely trade within an ascending channel pattern.

Sector Performance

Sector performance for the past week sees renewed interest in the technology sector, as sector rotation from value to growth seems to be taking a pause. Nasdaq has outperformed both the DJIA and S&P500 since mid-May. Underperformance was seen in cyclicals and reopening sectors in the likes of industrials, materials and financials. This comes amid falling US Treasury ten-year yields to its three-month low, suggesting easing inflation concerns on markets buying into the Fed’s narrative of it being ‘transitory’. Bond yields remain on watch ahead of the FOMC meeting this week, with a muted action below 1.50% level potentially driving further rotation into growth.

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

Adobe (ADBE) at its all-time high

Adobe has recently broken out to its all-time high, ahead of its results release this Thursday. Expectations are for its earnings per share (EPS) to grow 15% year-on-year from US$2.45 to US$2.81. With ongoing digitalisation of the economy expected to stay, increased enterprise IT adoption may lead to greater demand for software products.

MACD is upward-sloping into positive territory, denoting upward momentum near-term. That said, one may watch for a turn in the RSI from its overbought region into neutral territory, as previous reversal in the RSI below the 70 level mark was met with downside action on previous four occasions. Investors may look for a potential re-test of its previous high at the US$537 level, before choosing to take up long positions.

Prepared by

Yeap Jun Rong

Market Strategist, Singapore

Twitter: Yeap_IG

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