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Technical Report for the Week of 7/27/20

Technical Summary

Equities – The 1925 monthly chart suggests SPX is currently trading far above its historical PE valuations. Only two times has this occurred (i.e., prior to the Tech/Telcom bubble and the 2016-present scenario). Are the FED and US government stimulus programs keeping SPX elevated? The weekly SPX chart still suggests a the 2-year broadening pattern remains intact. Will SPX trend up to the top of the broadening pattern now at 3,521 before the start of the next major correction or bear decline? On the daily chart, the recent 2-mo triangle breakout above the June 2020 high (3,233.13), if confirmed, renders an SPX target closer to 3,500-3,515. An overbought condition and failure to follow through with its recent breakout suggest a consolidation to key initial support at 3,105-3,128 (50-day ma and 7/9/20 and 7/14/20 lows), and below this to 3,035-3,041.

Fixed Income – Since June 2020, the Copper/Gold ratio (CGR) and TNX has visibility diverged from each other. Is this a short-term anomaly, or is it a warning of the start of a sustainable trend? The 30-year Treasury yields (TYX) and the 10-year US Treasury yields (TNX) continue with their respective 4-mo head and shoulders top patterns. Key neckline support for TYX is 1.248-1.251% and below this to 1.126-1.193%. A convincing move above the left/right shoulders (1.49-1.581%) and above the head (1.761%) negates a top. TNX neckline support is 0.543-0.590%. The left/right shoulders and the head are 0.724-0.785% and 0.957%.

Commodities – CRB Index continues with its recovery as it nears the next key resistance at 144.67 or the 50% retracement from the Dec 2019-Apr 2020 decline. Key initial support is at 139.5-140, and below this to 133.5-136.5. WTI Crude Oil continues to challenge major resistance at 39.5-43 coinciding with the March 2020 h/s top breakdown, 61.8% retracement from the Jan-Apr 2020 decline, and the 200-day ma. Key initial support rises to 38-38.5 and then to 33-34. Gold is approaching 1,923.70 or the Sep 2011 all-time high. A recent 3-mo triangle breakout also renders a Gold target to 1,899-1,912. The key initial support is at 1,768.5-1,776.

Currencies – USD continues to weaken further and is now nearing a key test of support at 94.61-95.64. Violation here warns of the next decline to 93.39-94.19. Key initial resistance remains at 97.25-98 corresponding to the 200-day and 50-day ma. EURUSD continues to strengthen further as the recent breakout above 1.1493 (Mar 2020 high) hints of the next rally toward 1.1614-1.711 (the left shoulders). Key initial support rises to 1.107-1.126 or the 10-wk and 30-wk ma). JPYUSD has broken out above 0.9427-0.9434 or the May and Jun 2020 highs. This suggests the next rally to 0.9552-0.9563. The key initial support is 0.923-0.931.

S&P 500 Sectors – Major rotations continue within the 11 S&P 500 sectors. The sector rotations continue to favor the economically sensitive S&P sectors such as Consumer Discretionary (XLY) and Materials (XLB) where both sectors remain confined to the Leading Quadrant. Nonetheless, corrections are occurring in leadership S&P sectors such as Technology (XLK) and Communication Services (XLC). XLC is threatening to slip into the Weakening Quadrant further reaffirming a near-term consolidation within the Tech/Telecom sector. Defensive sectors such as Consumer Staples (XLP) are also benefiting from the recent increase in market volatility due to the uncertainties surrounding the COVID-19 pandemic. Although Energy (XLE) sector remains in the Improving Quadrant it continues to weaken further in relative price momentum.

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