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Technical Report for the Week of 12/11/23

Technical Summary

Equities – SPX – A head and shoulders bottom pattern hints at a breakout above the neckline at 4,607-4,609 (Jul and Dec 2023 highs). A breakout suggests 506.15 points, rendering an SPX target of 5,115. However, SPX needs to develop a right shoulder(s), preferably above the left shoulders at 4,328-4,335/4,217. Initial support is 4,512-4,546.5 (Nov 2023 breakout, Sept 2023 highs, and 12/6 low) and below 4,411-4,459 (11/14 gap-up and 38.2% retracement from 10/27-12/1 rally), and 4,352-4,394 (50-day ma and Jul 2023 downtrend breakout extension).

Fixed Income – 10-year minus 3-month yields (-1.21) enter into a trading range between -1.89 and -0.62). In 4 previous yield expansions, 3 led to recessions and bear markets, and 1 (2013) resulted in neither. Is this a repeat of the former or the latter? Fed Funds (5.33) have exceeded the Feb 2007 highs (5.26), but the 2-year (4.73) is still shy of the Jun 2006 highs (5.20), implying one or more Fed rate hikes. TNX – A breakdown below 4.5-4.598% and 4.33-4.362% suggest a retest of 4.029-4.094% (200-day ma). Resistance is 4.49-4.696%.

Commodities – CRB – A 4-month head/shoulders top neckline breakdown below 271-274.5 triggered a decline to pivotal support at 261-264. Initial resistance is 272-274.5 (200-day ma) and 277-279. WTI Crude – A recent decline to 68.80 (12/7/23) nears next support as WTI attempts to rebound from the Jun/Jul 2023 lows. Initial resistance is 72.5-75 and 78-80.5 (50/200-day ma). Gold – The recent rally achieved all-time highs (2,152.30 - 12/4/23). Consolidation led to a retest of key support at 2,011-2,019 and below 1,961-1,968.

Currencies – USD – The rebound from 102.38 or near support at 101.49-102.2 (Jun/Aug 20230 lows and the 61.8% retracement) prompts a rally to 104.19-105.155. EURUSD – Failure to clear 1.08-1.10 (200-day ma and Feb 2023 highs) has triggered a decline to initial support at 1.071-1.082 (50/200-day ma) and below 1.0516-1.0635. USDJPY – Recent violations of supports at 147.26-149.5 and 145-146 warn of a retest of 141.5-142.31 (Mar 2023 uptrend, Oct 2022 downtrend, and 200-day ma). Initial resistance is 145-147 and 149.23.

S&P 500 Sectors – RRG study shows mixed rotations from the previous week. Technology (XLK) and Financial (XLF) remain in the Leading Quadrant, with XLK strengthening. Communication Services (XLC) joins Energy (XLE) in the Weakening Quadrant. Healthcare (XLV) joins Consumer Discretionary (XLY) and Industrials (XLI) in the Lagging Quadrant, with XLY and XLI improving. Materials (XLB, Real Estate (XLRE), Consumer Staples (XLP), and Utilities (XLU) remain in the Improving Quadrant, with XLP, XLU, and XLRE improving.

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