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Technical Report for the Week of 8/3/20

Equities – SPX is close to another key technical breakout above the top of a 2-month ascending triangle between 3,043 and 3,233-3,280. A golden cross buy signal (7/8/20) is also technically constructive and bodes well for new all-time highs. Since the technical base is 267.5 to 314 points a confirmed breakout above recent Jul 2020 high of 3,280 renders the next SPX target to 3,260-3,328.5 (2/24/20 gap down), 3,337.77-3,393.52 (1/22/20 and 2/19/20 all-time highs), and then to 3,500-3,594 (the 2-month ascending triangle breakout projection). Initial support rises to as high as 3,137.5-3,155.5 or the 50-day ma and 7/6/20 breakout, and below this to 3,043-3,048.5 coinciding with the 200-day ma and the bottom of Jun 2020 triangle, and then to 2,946-3,000 or the 5/18/20 breakout and the Jun 2020 lows.

Fixed Income – The US fixed income market continues to warn of potential key technical breakdowns. For instance, 4-month head and shoulders top patterns remain intact for the 30-year US Treasury yields (TYX) and the 10-year US Treasury yields (TNX). For TYX key neckline support is evidenced at 1.248-1.251% and 1.126-1.193%. Above left/right shoulders (1.49-1.581) and the head (1.761%) would negate a top. TNX key neckline support is at 0.543-0.573%. The left/right shoulders and head are at 0.759-0.784% and 0.957%, respectively.

Commodities – CRB Index continues with its recovery and is now approaching the next key resistance at 144.67 or the 50% retracement from the Dec 2019-Apr 2020 decline. The key initial support is 138-140 and then 131.5-133.5. WTI Crude Oil is also nearing major resistance at 42-43 (Mar 2020 neckline breakdown, 61.8% retracement from the Jan-Apr 2020 decline, and the 200-day ma). Key initial support rises to 38-39 and then to 33-34. Gold has broken out above the Sep 2011 all-time high (1,923.70). This breakout renders a Gold target toward 2,723. Initial support rises to 1,923.70, and below this to 1,789-1,830.

Currencies – US Dollar (USD) has fallen sharply during Jul 2020 as it has violated key supports including 94.61-95.64 and 93.39-94.19. An oversold condition suggests the potential for a technical rally to initial resistance at 94.61 (Mar 2020 low), and above this to 95.71-96.5 (breakdown and 50-day ma). EURUSD has broken out above 1.1614-1.711 (the left shoulders). This technical development suggests EURUSD trending up to 1.21-1.22 to challenge the top of the 12-year downtrend channel. However, an overbought condition warns of a near-term pullback toward key initial support at 1.134/1.109 (10-wk/30-wk ma). JPYUSD has broken out above 0.9427-0.9434. This triggered a JPYUSD rally toward key resistance at 0.9552-0.9563. A negative outside day on 7/31/20 now warns of correction toward 0.9427-0.9434 or the 7/24/20 breakout.

S&P 500 Sectors – Major rotations continue within the 11 S&P 500 sectors favoring economically sensitive S&P sectors such as Consumer Discretionary (XLY) and Materials (XLB). However, the structural growth S&P sectors such as Technology (XLK) and Communication Services (XLC) have slipped into the Weakening Quadrant. This suggests near-term consolidations. Defensive sectors such as Consumer Staples (XLP) and Real Estate (XLRE) are moving higher within the Lagging Quadrant probably because of market volatility. Despite the declining US Dollar, the Energy sector (XLE) continues to weaken further within the Improving Quadrant. This negative divergence warns of the potential for the resumption of a structural downtrend in XLE.

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