Technical Report for the Week of 04/18/22

Technical Summary

Equities – A four-month cup and handle pattern may have developed in the SPX Index (SPX). It is technically a constructive formation that indicates a potential bottom and the resumption of the primary trend (structural bull). However, SPX must clear above 4,595-4,637 (Feb and Mar 2022 highs) to confirm a breakout and solidify the 2/24/22 low (4,114.65) as a market bottom. The breakout suggests 480.66-522.65 points or a retest of 4,818/62 (1/4/22 all-time high) and above this to 5,076-5,160 (breakout projection). Although a cup and handle hint at a bottom, a pullback is still possible toward the extension of the Jan 2022 downtrend breakout, currently at 4,219 and the 1/24/22 low (4,222.62). Below this suggests a retest of the pivotal Feb and Mar 2022 higher lows (4,116-4,158).

Fixed Income – The 10-year minus 3-mo yield spread continues to widen, contradicting the 10-year minus 2-year yield spread inversion. Above 1.71-1.73, suggests 2.09 (Dec 2016), 2.48 (Jun 2015), and 2.97 (Dec 2013). Initial support is 1.71-1.76/ 1.56-1.62/1.45-1.51. The 10-year minus 2-year spread briefly inverted (-0.06) in Apr 2022. Does this imply the next US recession as early as Dec 2022-Feb 2023? TNX is approaching a structural inflection at 2.87-3.19% (top of 1980 downtrend channel) and 3.04-3.25% (2013/2018 highs).

Commodities – CRB is nearing the next resistance at 321.5-326 (2012 highs) and 332-338 (61.8% retracement from 2008-2021 decline and Apr 2022 breakout target). Initial support rises to 307-309, 285.5-293, and 280.5. WTI Crude can rally to 116.64/130.50 (Mar 2022 higher-lows) and 147.27 (2008 record high). Initial support rises to 98.5-101 (50-day ma), 93-94 (Mar/Apr 2022 lows), and 85-87/90. Gold can still rally to 2,079-2,089 (2020/2022 highs). Initial support is 1,893-1,922 (50-day ma/Feb 2022 breakout) and 1,817-1,837.

Currencies – US Dollar continues to strengthen after a recent breakout above 99.30-99.425. The next resistance is 100.41-100.61 and 100.97-101.14. Initial support is 99.30-99.425 and 97.44-97.88. EURUSD nears next support at 1.0727-1.0778 and below this 1.06-1.0636 (Mar 2020 lows). Resistance is 1.109-1.1186 (3/31/22 high and the 50-day ma). JPYUSD is nearing key support at 0.7946-0.805 (2007, 2015, and 2022 lows). A deeply oversold condition hints of a rally to initial resistance at 0.8245-0.842, and above this 0.8596.

S&P 500 Sectors – The RRG study shows similar rotations toward defensive and commodities sectors. Real Estate (XLRE) joins Industrial (XLI), Healthcare (XLV), Utilities (XLU), Consumer Staples (XLP), Energy (XLE), and Materials (XLB) in the Leading Quadrant. XLU, XLV, and XLB remain the relative leaders. Communication Services (XLC) moves up to the Improving Quadrant. Technology (XLK) and Consumer Discretionary (XLY) remain in the Lagging Quadrant. Financials (XLF) weakens within the Weakening Quadrant.

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