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Technical Report for the Week of 08/31/20

Technical Summary

Equities – SPX has broken out above 3,393.52 (Feb 2020 high). This confirms the resumption of the 2009 uptrend channel and this hints of an SPX rally to the top of the channel (3,870-3,997) before the next major correction/bear. A V-pattern breakout above 3,393.52 also renders the next SPX target to 3,600 (top of 2018 channel), 4,136 (161.8% Fibonacci projection), and 4,595 (V breakout target). On a near-term basis, the next SPX target remains 3,580-3,600 or the top of the Apr 2020 uptrend channel. Key initial support is at 3,393.5-3,413 corresponding to the recent 8/24/20 gap up and the V-breakout.

Fixed Income – The 30-year US Treasury yields (TYX) and the 10-year US yields (TNX) continue to diverge as evidenced by a higher-low pattern in TYX and a lower low pattern in TNX. Since TYX is more sensitive to economic conditions does this imply a sustainable US business recovery and the continuation of the US stock market rally? TNX and TYX continue with 4-plus month head/shoulders tops. Potential right shoulders are developing on rallies to 1.48-1.58% (TYX) and 0.727-0.746% (TNX). Key neckline supports are visible along 1.126-1.165% (TYX) and 0.504-0.543% (TNX).

Commodities – CRB Index continues to test major resistance at 154.87-155.69 or the 61.8% retracement from the Jan-Apr 2020 decline and 3/20/20 gap-down. Key initial support rises to 148.5-15 and 144.25-146.5. WTI Crude Oil is also testing major resistance at 43-45 coinciding with the Mar 2020 neckline breakdown and the 61.8% retracement from the Jan-Apr 2020 decline. Key initial support rises to 41-42, and below this to 38.5-38.75. Gold’s breakout above 1,923.70 still renders an intermediate-term technical target to 2,723. The near-term trading range is between 1,874-1,844 and 2,089.

Currencies – US Dollar (USD) is now retesting the recent 8/18/20 low at 92.14. USD is deeply oversold and the ability to find support here is crucial to the start of a technical base between 92.14-92.5 and 93.50-93.97. EURUSD has slowed near the key resistance at 1.20-1.21. An overbought condition coupled with a negative outside day (8/21/20) hints of a trading range between 1.1696-1.711 and 1.1917-1.1966. JPYUSD rally has stalled at 0.9563-0.9599 as negative outside days (7/13/20 and 8/19/20) and a positive outside day (8/28/20) hints of a trading range (0.9341-0.9389 and 0.9515-0.9599).

S&P 500 Sectors – In the past 8 weeks ending on Aug 24, 2020, the S&P sector rotations continue to favor the cyclical sectors as evidenced by Consumer Discretionary (XLY 16.2%) and Materials (XLB 11.2%) residing within the Leading Quadrant. However, Communication Services (XLC 15.1%) and Technology (XLK 17.0%) have slipped into the Weakening Quadrant suggesting near-term consolidations of these two secular leadership sectors. Healthcare (XLV 6.3%), Consumer Staples (XLP 11.5%), and Utilities (XLU 2.0%) continue to improve within the Lagging Quadrant. Real Estate (XLRE 2.6%) has weakened within the Lagging Quadrant. Financial (XLF 10.4%) and Industrials (XLI 14.2%) remains in the Improving Quadrant. Energy (XLE) has again fallen into the Lagging Quadrant.

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