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Technical Report for the Week of 9/8/20

Technical Summary

Equities – Longer-term, SPX continues with its 2009 uptrend channel between 2,848-2,964 (major support) and 3,877-4,078 major resistance). Can SPX rally to the top of the channel before the next major correction/bear? On an intermediate-term basis, an SPX inflection has occurred via 2 conflicting patterns – a bullish V-breakout (above 3,393.52) and a bearish broadening top pattern (3,588.11 on 9/2/20). The outcome will likely determine the next directional trend. SPX has recorded a new all-time high (3,588.11 – 9/2/20). However, a negative outside week (8/31/20) now warns of a correction to initial support at 3,299.5-3,393.5, and below this to 3,233, and then to 3,044-3,093.

Fixed Income – The 30-year US Treasury yields (TYX) and the 10-year US yields (TNX) continue to diverge as evidenced by a higher-low pattern in TYX and a lower low pattern in TNX. Since TYX is more sensitive to economic conditions does this hint of a sustainable US business recovery and the continuation of the US stock market rally? TNX and TYX continue with their respective 5-mo month head/shoulders tops. Potential right shoulders are evidenced at 1.53-1.581% (TYX) and 0.759-0.784% (TNX). Key neckline supports are visible along 1.126-1.165% (TYX) and 0.504-0.543% (TNX).

Commodities – CRB Index has stalled near the key resistance at 154.87-155.69 or 61.8% retracement from the Jan-Apr 2020 decline and the 3/20/20 gap-down. This suggests a test of key initial support at 148.5-150.5, and below this to 144.5-146.5. WTI Crude Oil is also struggling to clear major resistance at 43-45 coinciding with the Mar 2020 neckline breakdown and the 61.8% retracement from the Jan-Apr 2020 decline. Key initial support is now visible at 38.5-38.75, and below this to 34-35.5. Gold’s breakout above 1,923.70 still renders a target to 2,723. Gold remains in a trading range between 1,874-1,910 and 2,089.

Currencies – US Dollar (USD) is nearing a critical juncture at 91.75 (9/1/20 low) as a potential right shoulder to a 5-year head/shoulders bottom continues to develop. The key initial resistance remains at 93.5-94.5. EURUSD has also stalled near the key resistance at 1.20-1.21. An overbought condition coupled with a negative outside day on 8/21/20 hints of a trading range between 1.164-1.696 and 1.1966-1.2012. JPYUSD’s rally has stalled at 0.9563-0.9599. Negative outside days on 7/13/20 and 8/19/20 as well as a positive outside day (8/28/20) hints of a trading range between 0.9341-0.9351 and 0.9497-0.9599.

S&P 500 Sectors – The sector rotations continue to favor the cyclical sectors including Consumer Discretionary (XLY), Materials (XLB), and Industrials (XLI) as all three S&P 500 sectors remain in the Leading/Improving Quadrants. However, the sharp corrections in the Technology (XLK), and Communication Services (XLC) over the past week have moved both structural leaders into the Weakening Quadrant. This warns of further correction before the resumption of the next major rally. Within the Lagging Quadrant, defensive sectors such as Consumer Staples (XLP), Healthcare (XLV), and Utilities (XLU) have improved, while Energy (XLE) and Real Estate (XLRE) have weakened.

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