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Technical Report for the Week of 02/07/22

Equities – The 1/4/22-1/24/22 SPX correction of 12.37% is either a correction (10%), a deeper correction (10-20%), or a cyclical bear (20%-plus). The recent SPX oversold rally has stalled at 4,595.31 (2/2/22). Market actions in the next few days to weeks will decide the next SPX directional trend. There are several technical scenarios: (1) a technical base develops via a higher-low pattern helps solidify the 1/24/22 low as a market bottom; (2) a head and shoulders top breakdown below the neckline at 4,222.62 signals the next SPX sell-off; and (3) recent correction is a bear trap as SPX clears the 4,818.62 all-time high, forcing sideline to return. Key technical levels are as follows: initial resistance is 4,590-4,619 (Jan 2022 downtrend, 61.8% retracement from 1/4/22-1/24/22 decline, 2/2/22 high, and the 50-day ma). Key initial support is 4,444 (200-day ma), below this to 4,279-4,306 (Sept/Oct 2021 and 1/28/22 lows), and 4,222.62 (1/24/22 reaction low).

Fixed Income – The 10-year minus 3-mo yield spread successfully tested key support at 1.60-1.62, prompting the recent rally to 1.71-1.73. Above 1.73 reaffirms the steepening spread trend to 2.09. Initial support is 1.60-1.62 and 1.51/1.45. The long, medium and short-term yields have broken out, with the short-end rising the fastest, suggesting investors expect the Fed to raise rates aggressively. TNX breakout above 1.693-1.765% suggests 1.90-1.97% and 2.15-2.33%. Initial support rises to 1.69%, 1.50-1.62%, and 1.34-1.45%.

Commodities – CRB breakout above 220 (secular downtrend channel) and 243.67-245 (2004 breakout) suggests 267.87 (61.8% retracement from 2011-2020 decline). Initial support rises to 241-245, 236.5-238 (50-day ma) and 229-229.5 (30-wk ma). WTI Crude Oil breakout above 74-77 suggests 91-93.5 (61.8% retracement from 2008-2020 decline) and 96-97. Initial support rises to 85.5-87.5 (Jan 2022 breakout), 81-82 (1/24/22 low), 76-78.5 (50-day,10-wk, and 10-mo ma). Gold retains a trading range between 1,773/1,721-1,753 and 1,854-1,879.5.

Currencies – US Dollar is consolidating its recent gains to key support at 94.61-94.79 (11/10/21 breakout and May 2021 highs). Key initial resistance is 96.94-97.44 (Nov 2021/2022 highs). EURUSD can still decline to 1.0727-1.0787. The ability to find support at 1.112-1.1186 has led to a technical oversold rally to 1.1483-1.15. JPYUSD remains vulnerable to a decline to 0.8595 (Jan 2022 low) and 0.8427-0.8453. Initial resistance is 0.8812-0.8886 (Nov/Dec 2021 and Jan 2022 highs) and 0.8956-0.896 (200-day ma).

S&P 500 Sectors – Eight (8) S&P sectors reside within the Leading and Improving Quadrants, suggesting S&P sectors are recovering from the 1/24/22 market low. Is this a technical bounce or sustainable recovery? Utilities (XLU), Consumer Staples (XLP), Real Estate (XLRE), Energy (XLE), and Materials (XLB) remain in the Leading Quadrant. Financials (XLF), Industrial (XLI), and Healthcare (XLV) rise within the Improving Quadrant, with XLI nearing the Leading Quadrant. Technology (XLK) and Consumer Discretionary (XLY) weaken within the Weakening Quadrant. Communication Services (XLC) remains in the lagging Quadrant.

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