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Technical Report for the Week of 07/18/22

Technical Summary

Equities – The 18-day SPX oversold rally from 6/17/22 low (3,636.87) continues. The three gap-ups (6/21, 6/24, and 7/15/22) have propelled the rally to key initial resistance at 3,909-4,019 (50-day ma, 6/10/22 gap-down, 6/28/22 high, and the 61.8% retracement from Jun 2022 decline). Trading support is 3,708.5-3,721.5 (7/14/22 low and 6/21/22 gap-up) and 3,636.87 (6/17/22 reaction low). Violation of 3,637 warns of a selloff to 3,467 or the bottom of the Apr/May 2022 downtrend channel and the convergences of pivotal supports.

Fixed Income – The 10-year minus 3-mo yield spread has contracted to 0.52 or near the 61.8% retracement (0.55) from the 2019-2022 rally. Initial resistance is 0.92-0.96, 1.29-1.40 and 1.56-1.61. The 10-year minus 2-year spread inverted in Apr 2022 (-0.06) and Jul 2022 (-0.22). The second inversion warns of a US recession as early as Dec 2022 to Feb 2023. TNX has stalled at structural resistance near 3.04-3.25%. A head and shoulders top warns of consolidation. Below neckline at 2.7-2.75% hints at a decline to 2.4-2.49%, 2.167%, and then 1.825%.

Commodities – CRB has corrected 17.09% to 273.26 (7/15/22) and nears pivotal support at 270-274 (200-day ma and 10-mo ma). Initial resistance is 296.5-297, 306, 315.5-320.5, and 329.59 (6/10/22). WTI Crude can rally to 123.5/130.50 (Mar/Jun highs) and 147/140 (2008 record highs). Recent correction to 95.10 (7/6/22) nears pivotal support at 90.5-93 (200-day ma, 10-mo ma, 7/14/22 low, and 2020 uptrend). Gold nears crucial intermediate-term support at 1,672-1,678. Initial resistance is 1,780-1,785, 1,815-1,843, and 1,862-1,882.5.

Currencies – US Dollar breakout above 103.82-103.96 suggests 118.59-121.21. Support rises to 105-105.5, 103-104, 101-101.5, and 98.5-99.5/95.5. EURUSD broke neckline support at 1.0339-1.0456, leading to a decline to 1.0112-1.0209, 0.9592. Initial resistance falls to 1.035-1.0359, 1.049-1.0615, 1.0787-1.0807, and 1.0934-1.104. JPYUSD has broken 0.740 or the 2002 reaction low, suggesting a decline to 0.6784-0.6819. Initial resistance is 0.754-0.7613, 0.7914-0.7995, 0.820-0.8595, and 0.8816-0.893.

S&P 500 Sectors – RRG study shows similar rotations as the previous week. Healthcare (XLV) is the only sector in the Leading Quadrant. Industrial (XLI), Real Estate (XLRE), Consumer Staples (XLP), Materials (XLB), Utilities (XLU), and Energy (XLE) weaken within the Weakening Quadrant. XLE has fallen dramatically, signaling an oversold condition. Financials (XLF) and Consumer Discretionary (XLY) improve within the Lagging Quadrant. Technology (XLK) and Communication Services (XLC) also improve within the Improving Quadrant.

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