Equities – Two head and shoulders top patterns breakdowns warn of further SPX selling. However, SPX achieved its 1-plus year h/s top neckline breakdown target (3,410.5), 50% retracement (3,505) from Mar 2020-Jan 2022 rally, and the Aug 2020 V-pattern breakout (3,393.5). Two positive outside days (10/13 and 10/21) hint at an oversold rally to initial resistance at 3,807-3,810 (10/5 high, 38.2% retracement from Aug-Oct 2022 decline, and Aug 2022 downtrend. Above this to 3,887-3,946 or the 50% retracement and the 50-day ma.
Fixed Income – The 10-year minus 3-mo yield spread contracted to 0.04 (8/1/22) and has now created a lower low at -0.03 (10/18/22), suggesting a decline from -0.20 to -0.52 (Feb 2020/Aug 2019 lows). The 10-year minus 2-year spread inverted in Apr 2022 (-0.06). A second and third lower-low in Aug 2022 (-0.48) and Sept 2022 (-0.51) warn of a deeper recession. TNX breakout above 3.248-3.483% suggests 4.25% (top of 2021 uptrend channel) and 4.4-4.5% (breakout target). Initial support is 3.25-3.50 and 2.52-2.78%.
Commodities – CRB’s violation of the 50/200-day ma (282/287.5) and a death cross-sell signal warns of a deeper correction to 241-245. Key initial resistance is 282-287.5 and 292-295. WTI Crude violated pivotal support at 85-88.5 led to a decline to 75-77.5. Rebound from 76.25 signals a recovery to initial resistance at 87, 93.5-97.5, and 102-105. Gold rebounded from 1,622.2- (9/29/22) via a positive outside day. Another positive outside day on 10/21/22 hints a recovery to initial resistance at 1,699-1,739, 1,780-1,785, and 1,794-1,824.5.
Currencies – US Dollar can rally to 118.59-121.21 (Oct 2000, Jul 2001, and Jun 2002 highs). Three negative outside days (9/28, 10/13, and 10/21/22) warn of consolidation to initial support at 109.96-110.79. EURUSD – The next support is 0.9330 (May 2002 breakout). Three positive outside days hint at an oversold rally to initial resistance at 0.9952-1.00, 1.0198, and 1.035-1.0368. USDJPY’s 20 and 30-year breakouts can still lead to a target of 160.35. A negative outside day (10/21/22) warns of consolidation to 145-146/140-142.5.
S&P 500 Sectors – RRG study continues with its volatile rotations. Healthcare (XLV) joins Financial (XLF), Consumer Discretionary (XLY), Industrials (XLI), and Energy (XLE) in the Leading Quadrant, with XLE and XLF strengthening and XLY weakening. Communication Services (XLC) joins Materials (XLB) in the Improving Quadrant. Consumer Staples (XLP) and Utilities (XLU) remain in the Weakening Quadrant, with XLP strengthening. Technology (XLK) and Real Estate (XLRE) weaken within the Lagging Quadrant.
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