Technical Report for the Week of 03/08/21

Updated: Mar 8, 2021

Technical Summary

Equities – A potential head and shoulders top pattern warns of a near-term SPX top. The recent -5.75% correction is nearing a crucial test of key initial support at 3,677-3,694 corresponding to the 1/29/21 reaction low, the pivotal neckline support to the 2-month head/shoulders top pattern, and the crucial 38.2% retracement from the 10/30/20 to 2/16/21 rally. Violation of neckline support below 3,677-3,694 confirms a head/shoulders top and warns of the next correction to 3,588-3,592 and then to 3,438-3,508. A successful test of 3,677-3,694 can also lead to an SPX rally back to the key initial resistance at 3,871 (1/26/21 high and the left shoulder), and above this to 3,929-3,950.5 (February 2021 all-time highs).

Fixed Income – The 10-year (TNX) and 30-year treasury yields (TYX) continue to trend higher. The next key resistance is their respective Sep, Nov, and Dec 2019 reaction highs at 1.903%, 1.943%, and 1.935% (TNX), and 2.378%, 2.427%, and 2.389% (TYX). Will TNX and TYX peak there? TYX and TNX have broken out above the top of their Aug 2020 uptrend channels. The breakouts also reaffirm technical rallies for TYX to 2.44-2.55% and for TNX to 1.66-1.68% and then 1.903-1.971%. Initial supports rise to 2.17-2.19%/1.915-1.93% (TYX) and 1.38%/1.187-1.245%/1.13-1.16% (TNX).

Commodities – CRB Index has cleared above its 2018 intermediate-term downtrend (178). The breakout suggests a retest of 202-207 (2008 highs). Initial support rises to 188-189.5, 179-180, and then 166.5-168.5. WTI Crude breakout above 57 (2018 downtrend) is now testing key resistance at 65.65-66.60 (Apr 2019/Jan 2021 highs). Initial support rises to 55-57 and 43.5-46.5. Gold’s 6-month correction is nearing a critical test of support at 1,666-1,695 (bottom of Aug 2020 channel, Apr, May, and Jun 2020 lows, and the 61.8% retracement from the Mar-Aug 2020 rally).

Currencies – US Dollar (USD) is attempting to bottom via two higher-low patterns (i.e., Feb 2018/Jan 2021 lows at 88.15/89.12 and 1/26/21 and 2/25/21 lows at 89.17/89.68). A convincing move above 92.5-93.25 confirms a breakout. Support is 89.17-89.68/88.15-89.17. EURUSD may have negated a 12-year downtrend (1.19-1.20). However, a 5-year head/shoulders top remains intact. Key support is 1.19 (10-wk ma and the 2008 downtrend). JPYUSD has fallen to key support at 0.9142-0.9210 or the bottom of the 2016 uptrend channel and the 30-mo ma. Initial resistance is 0.948-0.955 (50-day and 200-day ma).

S&P 500 Sectors – In the past eight weeks ending on March 1, 2021, market volatility has increased sharply over the past week. Interestingly, there were few changes in the RRG sector rotations charts. Communication Services (XLC) continues to strengthen further along with Energy (XLE), and Financial (XLF) within the Leading Quadrant. Industrial (XLI) and Consumer Discretionary (XLY) join Consumer Staples (XLP) and Utilities (XLU) in the Lagging Quadrant. Real Estate (XLRE) and Healthcare (XLV) continue to improve within the Improving Quadrant. Technology (XLK) suffers another near-term setback slipping back down to join Materials (XLB) in the Weakening Quadrant.

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