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Technical Report for the Week of 12/18/23

Technical Summary

Equities – SPX – The yearly chart shows a negative outside-year pattern in 2022 between 3,491.58 (10/13/22 low) and 4,818.62 (1/4/22 high). A negative outside year warns of the potential of a structural bear. However, it is rare to witness a negative outside after two positive outside years (2015 and 2120). Will a breakout above 4,818.62 in 2024 negate the 2022 negative outside year and render targets at 5,110.36, 6,145.66, and 6,441.96. Initial support is 4,607-4,637  (Mar/Jul 2023 highs), 4,428.5/4,317 (50-day/200-day ma), and 4,103.78 (10/27/23 reaction low).

Fixed Income – 10-year minus 2-year spread (-1.53) inverted in early Apr 2022 (-0.06). In six previous yield inversions, five resulted in US recessions approximately 8.5-10.5 months after the date of the inversion. Does this imply the recession has occurred or has been delayed? TNX (month/daily) – The 2022 neckline breakout above 3.036-3.248% confirms a structural bull and suggests targets at 5.316-3.547% and 6.098-6.297%. Recent decline nears support at 3.9-4.03% (200-day ma). Initial resistance is 4.29-4.36%/4.48-4.54%.

Commodities – CRB – A 4-month head/shoulders top neckline breakdown below 271-274.5 triggered a decline to 258-259, prompting an oversold rally to key resistance at 272-275 (50/200-da ma). WTI Crude –  A recent decline to 67.71  (12/13/23) tests support at 67-69 (Jun/Jul 2023 lows and extension of Jul 2023 downtrend). Initial resistance is 72.5-72.5 and 78-79.5. Gold – Ability to rebound from key support at 1,965-1,985 (50/200-day ma) and 12/14/23 gap-up hints at a rally to 2,079-2,085 and 2,152.30 (12/4 all-time highs).

Currencies – USD – The gap-down on 12/14/23 warns of another decline to 101.49-102.2 and 100.42-100.68. Initial resistance is 102.42-102.74 and 103.35-104.73. EURUSD – Failure to clear  1.08-1.10 (Feb, Nov, and Dec 2023 highs) has triggered a decline to key support at 1.074-1.083 (50-day and 200-day ma). USDJPY – Pullback nears key support at 141-142.5 (extension of Oct 2022 downtrend breakout and 200-day ma). Initial resistance is 145-147 (Jun 2023 highs and the Nov 2023 breakdown).

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

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