Technical Report for the Week of 10/12/20
Equities – After declining -378.66 or -10.55% during Sep 2020, SPX has found key support at 3,209.45 (9/24/20) or just above its 200-day ma (3,161.53). The correction has alleviated an overbought condition. Most importantly, the subsequent bullish actions such as the 9/28, 10/8, and 10/9 gap ups, and the surge above the 50-day ma (3,345) and the 10/8/20 gap-up breakout above 3,429 (9/16/20 island reversal high) now hint of a retest of the 9/2/20 all-time high (3,588.11), near-term. Above 3,588.11 signals the resumption of the primary uptrend and renders the next rally to 3,648.50 (10/8/20 gap-up breakout target), and then to 3,966.77 (3,588.11 breakout projection). Key initial support rises to 3,538-3,574.5 (10/9/20 gap-up), and below this to 3,428-3,429 (10/8/20 gap-up breakout), 3,345 (50-day ma), 3,161.5-3,209.45 (9/24/20 low and 200-day ma), and then to 3,054.74 (38.2% retracement from Mar-Sep 2020 rally).
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. However, since Sep 2020, higher-lows have developed. Does this then hint of an economic recovery and the continuation of the US stock rally? TYX and TNX confirmed positive outside months (Aug 2020), suggesting bottoms. However, to confirm major reversals, TYX still must clear above 1.53-1.581% and 1.761%, and TNX must surge above 0.759-0.784% and then 0.907-0.957%.
Commodities – CRB Index continues to consolidate between the key initial support at 139.5-142.5 or the Jul 2020 breakout and the Oct 2020 lows and major resistance at 154.65 or the 8/31/20 high. WTI Crude Oil is also consolidating between initial support at 34.5-35 or the Mar 2020 neckline breakdown and the 61.8% retracement and the key resistance at 43.5-45 or the Mar 2020 neckline breakdown and the 61.8% retracement from Jan-Apr 2020 decline. Gold continues with its bullish consolidation between 1,845-1,851 and 1,944-1,947.
Currencies – US Dollar (USD) broke out of a head/shoulders bottom during Sep 2020. However, the 10/5/20 weekly reversal below neckline resistance at 93.92-93.97 warns of a false breakout. The next key initial support is 92.5-82.68 (the left/right shoulders) and 91.75 (the head). EURUSD has rebounded strongly after reversing above its neckline (1.17-1.18) as this hint of a false breakdown. Key resistance is 1.1917-1.1966 (the left and right shoulders). JPYUSD continues to consolidate between 0.930-0.9351 (initial support) and 0.9563-0.9615 (key resistance).
S&P 500 Sectors – In the past eight weeks ending on October 5, 2020, the S&P 500 sector rotations continue to favor the cyclical sectors as Consumer Discretionary (XLY 7.1%), Materials (XLB 6.7%), and Industrials (XLI 4.5%) are residing in the Leading Quadrant. Communication Services (XLC 1.0%) and Technology (XLK 5.8%) remain in the Weakening Quadrant suggesting corrections. Two S&P sectors are in the Lagging Quadrant - Healthcare (XLV 1.9%), which is improving, and Energy (XLE -18.1%), which continues to weaken further. Utilities (XLU 6.0%), Real Estate (XLRE 3.6%), Consumer Staples (XLP 3.1%), and Financial (XLF 0.8%) continue to trend higher, confirming technical improvements within the Improving Quadrant.
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