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Technical Report for the Week of 10/26/20

Technical Summary

Equities – After declining 378.66 points or -10.55%, the Sep 2020 SPX correction may have found the key support at 3,209.45 (9/24/20). The current consolidation may be alleviating an overbought condition created by the Mar-Sep 2020 rally. Although the 9/28, 10/8, 10/9, and 10/12/20 gap-ups are bullish, a lower-high at 3,549.85-3,588.11 or the Oct/Sep 2020 highs still warns of further consolidation. Above 3,550-3,588 confirms a 2-mo triangle breakout and suggests 378.66 points or an SPX target of 3,928.5-3,967. Key initial support rises to 3,393.55-3,408 or the Aug 2020 V-breakout and the 50-day ma. Below this suggests 3,307-3,333 or the 9/28/20 gap-up, 3,209.5-3,233 (9/24/20 low, and the Jul 2020 breakout), and then 3,055-3,128.5 (200-day ma and the 38.2% retracement from the Mar-Sep 2020 rally).

Fixed Income – The 30-year US yields (TYX) and the 10-year US yields (TNX) diverged during the Apr-Aug 2020 timeframe as a higher-low pattern developed in TYX versus a lower-low pattern in TNX. Since Sep 2020, a series of higher-lows suggest major bottom in US interest rates. The onset of a higher-high pattern in TYX and TNX above 1.67-1.761% and 0.904-0.957%, respectively would further reaffirm the major bottoms, and signal the start of sustainable higher yields.

Commodities – CRB Index continues to struggle to clear above the key resistance zone at 154.65-155.69. CRB initial support rises to 149.86 (50-day ma), and below this to 144.64 (200-day ma). WTI Crude Oil is also encountering formidable resistance at 43-45. The key initial support is 36-38, and below this to 28.5-29.5. Gold continues to consolidate its gains over the past few months trading within a trading range between 1,845-1,851 (key initial support) and 1,931-1,939.5 (key initial resistance).

Currencies – US Dollar (USD) broke out of a head/shoulders bottom in 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 92.46-92.5 (left/right shoulders) and 91.75 (head). EURUSD has rebounded above its neckline (1.17-1.18), and this hint of a false breakdown. Key resistance is 1.1917-1.1966 (left/right shoulders) and then 1.2012. JPYUSD continues to consolidate as it nears the key initial resistance at 0.9599-0.9615.

S&P 500 Sectors – In the past eight weeks ending on October 19, 2020, the S&P 500 sector rotations continue to favor the cyclical sectors as evidenced by Consumer Discretionary (XLY 1.9%), Materials (XLB 3.7%), and Industrials (XLI 3.4%) residing within the Leading Quadrant. However, XLB and XLY are close to slipping into the Weakening Quadrant. Communication Services (XLC -2.1%) and Technology (XLK -3.6%) remain confined to the Weakening Quadrant suggesting further corrections. The two S&P sectors residing within the Lagging Quadrant are Healthcare (XLV 0.2%), which continues to improve, and Energy (XLE -15.2%), which continues to weaken. Utilities (XLU 10.6%), Real Estate (XLRE -2.1%), and Consumer Staples (XLP 0.0%), and Financial (XLF 0.1%) continue to improve within the Improving Quadrant.

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