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Technical Report for the Week of 09/21/20

Technical Summary


Equities – SPX shows an important outside year pattern. The outcome at the end of the year will likely decide the next SPX structural trend. A potential outside month pattern is also developing. If SPX ends September below the August 2020 intra-month low of 3,284.53 this confirms a third negative outside month and warns of a deeper correction. Previous negative outside months preceded 2 major bears (2000-2002 and 2007-2009). On the daily chart, SPX has weakened as evidenced by a negative outside week (8/31/20), negative outside days (9/10 and 9/16), gap-down (9/17/20), and a 2-month h/s top pattern.

Fixed Income – The 30-year US Treasury yields (TYX) and the 10-year US yields (TNX) diverged during Apr-Aug 2020 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? TYX and TNX put in positive outside months (Aug 2020) signaling potential major bottoms. However, 5-month h/s tops remain intact. The left/right shoulders are 1.417-1.4578% and 1.53-1.581% (TYX) and 0.745-0.759% and 0.746-0.784% (TNX).


Commodities – CRB Index continues to encounter major resistance at 154.87-155.69 coinciding with the 61.8% retracement from the Jan-Apr 2020 decline and the 3/20/20 gap-down. Key initial support is 144.5, 139.5-140, and then 131.5-133.5. WTI Crude Oil also continues to struggle to break out above key resistance at 43-45 corresponding to the Mar 2020 neckline breakdown and the 61.8% retracement from the Jan-Apr 2020 decline. Key initial support is now at 35-36, 29-31, and then 26. Gold continues with its near-term trading range between 1,874-1,912 (key initial support) and 2,089 (key initial supply).


Currencies – US Dollar (USD) continues to challenge key neckline resistance at 93.92-93.97 coinciding with the 2-mo head/shoulders bottom pattern. The ability to breakout suggests +2.22 points or the next USD target toward 96-97. Key support remains 91.75 or the 9/1/20 low. EURUSD has a potential 2-mo head/shoulders top developing. Below neckline support at 1.3696-1.737 warns of -0.0316 decline toward 1.14-1.15. Key resistance remains at 1.2012 or the 9/1/20 high. JPYUSD’s rally has stalled at 0.9563-0.9599 suggesting a trading range scenario is likely between 0.9434-0.9471 and 0.9563-0.9599.


S&P 500 Sectors – In the past 8 weeks ending on September 14, 2020, rotations continue to favor the cyclical sectors as evidenced by Consumer Discretionary (XLY 6.2%), Materials (XLB 6.9%), and now Industrials (XLI 9.7%) residing within the Leading Quadrant. Communication Services (XLC 3.3%) and Technology (XLK 6.2%) continue to slip deeper into the Weakening Quadrant suggesting consolidations. Healthcare (XLV 0.4%), Utilities (XLU -2.9%), and Real Estate (XLRE 2.3%) continue to improve within the Lagging Quadrant. Energy (XLE -10.4%) continues to struggle in the Lagging Quadrant. Consumer Staples (XLP 2.5%) has moved into the Improving Quadrant and Financial (XLF 1.7%) continues to rise within the Improving Quadrant.


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