Equities – The 12.37% correction to 4,222.62 (1/24/22) and the subsequent oversold rally is either a correction (10%), the start of a deep correction (10-20%), or a cyclical bear decline (20%-plus). The recent SPX oversold rally has stalled near the key resistance at 4,590-4,619 ( 61.8% retracement, Feb 2022 highs, and the 50-day ma). The pullback will decide the next SPX directional trend. Head and shoulders top warns of a distribution top. Initial support is 4,451.5-4,452 (2/4/22 low and the 200-day ma), and below this to 4,279-4,330 (Sept/Oct 2021 and 1/28/22 lows), and 4,222.62 (1/24 low). Violation of 4,222.62 completes a head and shoulders top and warns of a deep correction or a cyclical bear decline. Above 4,546-4,609 signals next SPX rally to 4,713.5-4,749 (Nov and 1/12/22 highs or the left/right shoulders), and then 4,818.62 (1/4/22 all-time high).
Fixed Income – The 10-year minus 3-mo yield spread has contracted after failing to breakout above 1.71-1.73 (Mar 2021 and Jan/Feb 2022 highs). Above 1.73 reaffirms steepening to 2.09. Initial support is 1.53-1.56, 1.45, and 1.29-1.39. US yields have broken out, suggesting investors expect the Fed to raise rates aggressively in March. Overbought conditions warn of consolidations. TNX breakout above 1.693-1.765% suggests 2.15-2.33%. Initial support is 1.66-1.69%, 1.46-1.51%, and 1.343%.
Commodities – CRB has climbed to 263.08 (2/11/22) or is within reach of pivotal resistance at 267.87 (61.8% retracement from 2011-2020 decline). A breakout reaffirms real inflation. Initial support is 240-242 (50-day ma), 229-231 (30-wk ma) and 224.5 (200-day ma). WTI Crude Oil nears next resistance at 93.5 (61.8% retracement from 2008-2020 decline) and 96-97 (Sep 2021 breakout target). Initial support is 85-88 (Jan 2022 breakout and Feb 2022 lows), 85-88, and 76-79. Gold is nearing a breakout above the top of the triangle (1,859-1,879.5).
Currencies – US Dollar tested initial support at 94.61-94.79 (11/10/21 breakout and May 2021 highs), prompting a rally to initial resistance at 96.89-96.94 (Nov/Dec 2021 highs). EURUSD has stalled at resistance near 1.1483-1.1495 (Jan and Feb 2022 highs). Initial support is 1.1326-1.1330 (50-day ma), below this to 1.1273 (1/4/22 low) and 1.1122-1.1186. JPYUSD nears Jan/Feb 2022 lows at 0.8595-0.8596. Breakdown suggests 0.8427-0.8453. Key initial resistance is 0.8728-0.8758 (50-day ma and 2/2/22 high) and 0.8812-0.8886 (Jan highs).
S&P 500 Sectors – RRG study continues to show a tilt toward defensive, commodity-based, and interest-rate-sensitive S&P sectors. Financials (XLF) joins Utilities (XLU), Consumer Staples (XLP), Real Estate (XLRE), Energy (XLE), and Materials (XLB) in the Leading Quadrant. Industrial (XLI) and Healthcare (XLV) strengthen within the Improving Quadrant, with XLV nearing the Leading Quadrant. Technology (XLK) weakens within the Weakening Quadrant. Consumer Discretionary (XLY) joins Communication Services (XLC) in the Weakening Quadrant.
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