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Technical Report for the Week of 10/03/22

Technical Summary

Equities – SPX Index – Two head and shoulders top patterns warn of further selling. Violation of the large h/s top neckline at 4,116.5 (May 2022) suggests 703.97 points or a projection of 3,410.5 or close to the 50% retracement (3,505) from the Mar 2020-Jan 2022 rally and the Aug 2020 V-pattern breakout (3,393.5). Initial resistance is 3,637-3,749.5 (neckline, 9/23/22 gap-down, Jul 2022 low, and 9/28/22 high) and above this 3,907-3,946 (9/21/22 negative outside day high and 6/28/22 negative outside day high), and 3,976-4,011.5.

Fixed Income – The 10-year minus 3-mo yield spread contracted to 0.04 (8/1/22) before rebounding. A higher low (0.4 – Aug 2022 and 0.12 – Sept 2022) hints at a potential bottom and oversold rallies. The 10-year minus 2-year spread inverted in Apr 2022 (-0.06). A second lower low in Aug 2022 (-0.48), and now a third lower low in Sept 2022 (-0.51). What are the implications of the divergence between 10-2 year and 10-3-month spreads? TNX completes 6-month and 31-year breakouts. The next target is 4.4-4.5%. Initial support is 3.483% and 3.14%.

Commodities – CRB broke support at 273-276.5 (Jul/Sept 2022 lows), prompting a decline to 241-245. Initial resistance is 273-267/284-288. WTI Crude violated pivotal support at 85-88.5 (1/18/22 breakout, Feb/Aug 2022 lows, and the 61.8% retracement) prompting a decline to 75-77.5. Initial resistance is 85-86, 89-91, and 95-97.5. Gold broke pivotal support at 1,672-1,678 (Jun 2020, 2021, and Jul 2022 lows), prompting a decline to 1,627.5 (50% retracement from the 2018-2020 rally). Initial resistance is 1,736-1,753, 1,779-1,785, and 1,823-1,827.

Currencies – US Dollar rallies to intermediate-term resistance at 118.59-121.21 (Oct 2000, Jul 2001, and Jun 2002 highs). A negative outside day on 9/28/22 signals consolidation to initial support at 109.14-110.79. EURUSD nears initial resistance at 0.9864-1.01 (Jul and early-Sept lows, and 50-day ma). Initial support is 0.950-0.9538 (Sept 2022 low and the bottom of Jan 2022 downtrend channel). JPYUSD nears key support at 0.6784-0.6819 (Jun/Aug 2008 lows). Initial resistance is 0.7125-0.721 (Jul 2022 low, 9/22/22 high, and 50-day ma).

S&P 500 Sectors – RRG study confirms broad selling. Consumer Discretionary (XLY), Industrials (XLI), and Technology (XLK) remain in the Leading Quadrant, with XLI strengthening and XLK and XLY weakening. Financial (XLF) strengthens in Improving Quadrant. Communication Services (XLC), Real Estate (XLRE), and Materials (XLB) remain in the Lagging Quadrant, with XLB improving and XLC and XLRE weakening. Consumer Staples (XLP), Healthcare (XLV), Utilities (XLU), and Energy (XLE) improve in Weakening Quadrant.

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