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Technical Report for the Week of 8/17/20

Technical Summary

Equities – Although SPX is still trading marginally below its 2/19/20 record high of 3,393.52. However, a recent 2-month ascending triangle above 3,233.13 on 7/20/20 and a daily golden cross buy signal on 7/8/20 are bullish developments. Since the technical base is 267.5 points this renders an SPX target to 3,501. The top of the Apr 2020 uptrend channel is also rising near 3,704 providing intermediate-term resistance. Key initial support rises to 3,233-3,235 coinciding with the recent 7/20/20 ascending triangle breakout. Secondary support is at 3,199 or the 50-day ma, and then to 3,064.5-3,113 corresponding to the 200-day ma and the bottom of the Jun 2020 triangle.

Fixed Income – Since Apr 2020, the 30-year US Treasury yield (TYX - 1.442%) and the 10-year US Treasury yield (TNX - 0.709%) have visibly diverged as a higher-low pattern is developing in TYX (i.e., 1.162% and 1.191%) as compared to a lower-low pattern in TNX (i.e., 0.571% and 0.515%). The 4-mo head and shoulders top patterns continue for the 30-year Treasury yields (TYX) and the 10-year US Treasury yields. The recent rallies in US interest rates (yields) are headed toward key resistances to test the respective left and right shoulders at 1.485-1.581% (TYX) and 0.759-0.784% (TNX).

Commodities – CRB Index is nearing the next key resistance at 152.5-155 or the 61.8% retracement from the Jan-Apr 2020 decline and the 200-day ma. Key initial support rises to 139.5-140 and then to 131.5-133.5. WTI Crude Oil continues with its recovery and is now challenging major resistance at 42.5-43.5 (Mar 2020 neckline breakdown, 61.8% retracement from the Jan-Apr 2020 decline, and the 200-day ma). Key initial support rises to 38.5-38.75.25 and then to 34-34.5. Gold’s breakout above 1,923.70 still renders a target to 2,723. However, an overbought condition now warns of a near-term consolidation toward key initial support at 1,874-1,924, and below this to secondary support at 1,789-1,844.

Currencies USD has fallen sharply to a recent low of 92.50 on 8/6/20. This hints of the potential for a right shoulder to a 5-year head/shoulders bottom pattern. Key initial resistance falls to 94.61 (Mar 2020 low), and then to 95.59-96.02. EURUSD rally may be peaking as it nears key resistance at 1.20-1.21 (12-year downtrend channel and the 50% retracement from the 2008-2017 decline). Key initial support rises to 1.1422-1.1493 and then 1.123-1.136. JPYUSD rally may be stalling near the key resistance at 0.9552-0.9563 prompting a potential pullback toward key initial support at 0.9341 (50-day ma), and below this to 0.9246-0.928.

S&P 500 Sectors In the past 8 weeks ending on Aug 10, 2020, the S&P sector rotations continue to favor the cyclical areas as evidenced by Consumer Discretionary (XLY 13.0%) and Materials (XLB 12.1%) residing within the Leading Quadrant. However, Communication Services (XLC 7.9%) and Technology (XLK 11.7%) has slipped into the Weakening Quadrant. This suggests consolidations in these two leadership sectors. Healthcare (XLV 6.5%), Consumer Staples (XLP 8.5%), Utilities (XLU 5.9%), and Real Estate (XLRE 2.2%) continue to improve within the Lagging Quadrant. Financial (XLF 5.7%), Industrials (XLI 12.5%, and Energy (XLE -2.2%) remain within the Improving Quadrant. However, XLE continues to decline sharply and this warns of continued relative underperformances against its S&P peers.

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Technical Summary Equities –SPX – Three technical developments signal intermediate-term recoveries: (1) Late Jan 2023 downtrend breakout and golden cross buy. (2) May and Jun 2023 breakouts. (3) 61.8%

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