Technical Report for the Week of 12/21/20

Technical Summary

Equities – With the recent 69.24% SPX rally from the Mar 2020 bottom, the question that begs to be answered is how high is high for SPX? (1) The 3-mo triangle breakout renders a technical projection to 3,928.5-3,967, near-term. (2) The 161.8% Fibonacci projection renders a target to 4,136, medium-term. (3) The V-pattern breakout suggests 4,595, intermediate-term. SPX is nearing overbought levels (RSI is 63.53). In the past, SPX peaked at RSI of 78.79 (12/26/19) and 83.03 (9/2/20), respectively. Key initial support is 3,548-3,588 (Nov 2020 triangle breakout and the 50-day ma), and below this to 3,393.52 (V-pattern breakout), and then 3,190-3,250 (200-day ma, Sep/Oct 2020 lows, and the bottom of the triangle).

Fixed Income – The 30-year US yields (TYX) and the 10-year US yields (TNX) temporarily diverged during Apr-Aug 2020 via higher-low in TYX and lower-low in TNX. Since Sep 2020, a series of higher-lows and higher-highs suggest a direct relationship, reaffirming higher US interest rates. A TYX breakout above 1.761-1.767% and 1.83/1.92-1.94% suggests the next TYX rally to 2.14-2.24% and then to 2.35-2.45%. A TNX breakout above 0.975-0.998% and 0.989-1.12% suggests the next TNX rally to 1.171-1.266% and then to 1.32-1.48%.

Commodities – CRB Index has broken out above 154.65-155.69 prompting a rally to the key resistance at 166.5-168. Initial support rises to 159.5-161.5, and below this to 154.65-155.26, and then 149-151. WTI Crude Oil has also broken out, and this suggests the next rally to 50.5-52, and then to 63.5-66.6. Initial support rises to 43.06-43.78, 40.25-41.5, 36.13-36.63, and then 33.64. Gold continues with its consolidation via the Aug 2020 downtrend channel between 1,747 and 1,937. Above 1,937-1,966 confirms breakout. The initial support is 1,875 and then 1,818.5-1,851.

Currencies – US Dollar (USD) downtrend is nearing pivotal support at 88.71-89.08/88.15. The recent sell-off is creating an oversold condition. Initial resistance is 90.5-91.25, 91.75-92.29, 94.5-95.75, and then 92.25-95.5. EURUSD continues to strengthen. Although the recent breakout suggests targets to 1.235-1.2419, and then to 1.2555 an overbought condition is developing. Initial support rises to 1.2012-1.2059 and then 1.190-1.192. JPYUSD continues to climb toward the next key resistance at 0.9692-0.9721 (Nov/Dec 2020 highs) and above this to 0.9870 (3/09/20 high).

S&P 500 Sectors – In the past eight weeks ending on Dec 14, 2020, the S&P 500 sector rotations show one change. Financial (XLF), Communication Services (XLC), and Industrials (XLI) remain in the Leading Quadrant. However, XLI is close to slipping into the Weakening Quadrant. Consumer Discretionary (XLY), Technology (XLK), and Materials (XLB) continue to correct within the Weakening Quadrant. Consumer Staples (XLP) now joins Real Estate (XLRE) in the Lagging Quadrant. Healthcare (XLV), Utilities (XLU), and Energy (XLE) remain within the Improving Quadrant. XLE continues with its strong price momentum.

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