Morning Notes — SPX, NDX and SVX

SPX: Cyclical and value sectors (Industrials, Financials, Materials and Energy) have been leading the S&P 500 to record highs since the 11/9 release of positive vaccine data.  New highs based on cyclical/value leadership are generally considered heathier and more sustainable than those based on defensive sector or bond proxy leadership. Our concern at the moment is bullish equity sentiment as last week’s AAII data edges back toward extreme levels.

NDX: The Nasdaq 100 continues to struggle with technical resistance at ~12,420.  The index has managed to close just above that level over the past two sessions, but more strength is required to clear concerns of a potential triple top.  We’re not surprised by the NDX struggle to meaningfully clear resistance.  Tech/momentum multiple expansion during the spring and summer came to an abrupt end on September 3 when CIEN issued bad guidance based on COVID-related project delays/deferments. CIEN’s guidance on 9/3 didn’t change anyone’s positive view on secular growth fundamentals within Tech, it just happened to be the first company since May to issue negative guidance.  The event kicked off what could be a ~2-3 quarter period when good results can catch up to multiples and bad results lead to healthy multiple compression.

SVX: The S&P 500 Value Index broke through long-standing pattern resistance on 11/9 vaccine data.  Pattern resistance is generally considered stronger than what’s facing the NDX at the moment. Clearing the range added conviction to our cyclical/value bias that started in early-September. Even more conviction would follow further steepening in the Treasury yield curve to a 5yr/30yr yield spread of ~140bps or more (currently 127bps).