Technical Analysis: Weekly Market Strategy
This is the next installment of a weekly, exclusive, series of technical analyses that DeFinity is proud to share with its community.
The analysis is completed by renowned, experienced financial analyst and successful global podcaster, Paul Rodriguez.
Paul Rodriguez lectured at the City University in London on the subject of Technical Analysis whilst working as an award winning analyst at NatWest Global Financial Markets (Now RBS) in the 1990’s, pioneering and promoting the education and use of technical analysis to City professionals and private investors. Paul set up Think Trading to continue that education and consultancy having appeared frequently on financial news channels seeking his views. He set up the State of The Markets Podcast with fund Manager Tim Price three years ago, which consistently tops the top 50 UK business podcasts and has a global audience. He provides bespoke research and consultancy to market-leading firms.
SUMMARY:
Risk-on trades continue with base & precious metals performing well and equity markets pushing higher. Expectations of next year’s US rate rises have been paired back considerably as the market aligns to our core strategy. The US Fed even acknowledged that hikes take time to filter into the system, and if inflation data continues to weaken (which it will in our opinion) the prospects of a pause will become compelling. This underpins the bullish macro conditions.
As we mentioned last week, sentiment in crypto is of the type that is normally associated with a major low. Coupled with the bullish macro conditions, the disparity will spark a major rally soon, but when? The charts currently look pressured by short term pattern set-ups, but the nature of these is such that, if the market is not lower by early next week, a rally becomes more compelling. We understand the temptation to ‘bottom-fish’ here (which is also time frame dependent), but we still need a bullish technical signal to cement the end of the crypto winter. Any sharp short term short cover rally would most likely be induced by ETH. Despite the news, it has not traded into a new 2022 low and hence a bullish sign (admittedly tempered by broadly range-bound price action). Any rally in the whole sector will most likely be led through ETH.
DXY
Short term targets at 102.35/103.42 are approaching which is close to the 200 day m.a. Hence a further decline into this support should follow by a short-cover rally back — perhaps to 108 — before the trend resumes lower. The main upward trendline at 101 is now the last significant support for the US dollar and a break of this would be the final confirmation that a multi-year decline is at hand.
US 10 Year Yield
We remain bearish for yields with a test of 3.50% support the next target. A break of this key level would imply a significant reversal in sentiment and whilst we anticipate a continued revision in market expectations, it would take a major commodity decline to produce this extended move. We consider anything below 4.0% as promoting ‘risk-on trades.’
Gold
An impulsive trend in gold has been supported by the weakening US dollar. Whilst, we are long term bulls of gold, resistance between 1787 and 1802 is strong and may encourage some profit taking, causing a pull-back towards 1730 ahead of the next impulsive trend. Whilst above 1670, we will remain bullish.
S&P500
We maintain a strategic bullish view here whilst above 3720 (up from 3636). The two major obstacles remain at the 200 day m.a.(4073) and the main downward trend (4180 and declining) — both of which we expect to be breached by Jan 2023.
Ethereum
Sentiment is bearish and yet the market is trading with a wide margin above the 2022 lows. The short term price action is taking the form of a bearish pennant which implies an extended move lower — however if the market does not extend by Friday, the clock will be ticking for a short-cover rally. Any break of 1280 could spark this move as it would negate the continuation pattern. From a long term perspective the 200 day ma. is a useful marker to indicate a thawing of sentiment. Major resistance remains at 1720 and the 2035, a break of which would herald the end of the crypto winter.
Bitcoin Daily Chart
BTC has taken the brunt of the market’s negative sentiment. On the plus side, the downward move has not extended much further from last week. However, price action has formed a potential short term bearish pennant risking a test of 14,715. We anticipate a rebound from this level if hit (top end of a major support zone see the long term chart below). Short term traders will be watching 17,262 as a break through this would indicate a short squeeze (implying the continuation pattern has failed).
Bitcoin Weekly Chart
Strategic support at 13,880/14,715 is coming into focus. A test of this zone is not compulsory to reverse the trend but as risk/reward zone it represents an area of interest. Failure to hold this zone would indicate structural issues, but whilst above, and with ETH holding a more positive technical picture, we retain our long term bullish outlook, awaiting confirmatory signals that the down trend has completed.
This report is superficial in nature and may contain errors. No warranty is given to the accuracy of the data or text and any reader must understand that it should not in anyway form part of an investment process — that is reserved for that individual/business and an investment professional. No positions should be taken, exited or otherwise considered on the basis of this research. This is a condition of reading this document. The main function is of education into how different chart patterns might indicate a future trend (or lack thereof) and not for the purposes of speculation or investment.
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