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Morning Notes — NDX, SPX, SVX


November 19, 2021

NDX: The NASDAQ 100 (NDX) has led all other major indices this week as 10-year real yields have remained anchored (now -1.15) near all-time lows at -1.19.

SPX: The S&P 500 (SPX) is short-term overbought using slowed stochastics and overbought using a number of high-frequency measures. Markets can stay overbought/oversold for weeks at a time, especially when there are no catalysts to shift the prevailing narrative.  We’re not there yet, with several important catalysts between here and mid-December. The 12/15 Fed meeting is likely the last big catalyst before heading into a 2-week long catalyst vacuum.  There’s also a seasonal dynamic (mentioned yesterday) to hold the SPX in overbought territory as long-only managers shift into self-preservation mode (mega-cap defensive growth) and hedge fund managers shy away from negative P&L short positions.  Any pullbacks we see into year-end will likely find support around 4540 (~3.5% below current levels) with stronger, secondary support in the 4430-4460 range (~5% below current levels).

SVX: The S&P 500 Value Index (SVX) pulls back this week as the 5/30-year Treasury yield spread (now ~70bps) failed to break through our ~75bps trigger. While we don’t expect new cycle lows below ~65bps, there’s also no objective reason to add cyclical/value equity exposure until the yield curve confirms a fundamental reflation theme.  However, it’s not hard to find cyclically-sensitive stocks with ~10%-15% free cash flow (FCF) yields trading at ~4-8x EBITDA.  And these are easy names to add when the 5/30 yield spread sustains levels above ~75bps.

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