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:
The FED hiked 75bps as expected, but issued a statement that it would be premature to call the end of the tightening cycle (they did acknowledge the rate of hikes will slow — which is aligned to our view and reflects our bullish view of asset markets and bearish US dollar outlook). The US dollar jumped, but in the context of a consolidation that has no conclusive direction. We maintain that the top is near and, whilst a new high in the DXY is possible, this may just to be to lift stops ahead of a more substantial reversal. Topping phases can take many weeks, sometimes longer, but we’re comfortable with the view that the majority of the rally is over. With rallies becoming harder to impel, eventually the new downside trend will take hold. Next week’s CPI should be interesting as a weaker number would negate the Fed’s comments and support a sea-change in the broader market view.
The UK Bank of England also hiked this week by an expected 75bs — they simultaneously issued a statement predicting the longest UK recession ever to be recorded. The incongruity of their statement set against their actions is puzzling. Our view is a recession is not imminent because UK equities look ready to trade much higher and it is the market that dictates to the BoE and not the other way round. More importantly they’ve unsurprisingly revised down a too hawkish cycle peak of 6% for UK rates to 4.5% and once the dust has settled, the market will focus on this.
Crypto assets continue to consolidate from both a long and short term perspective. Given the strong showing in equities, the crypto rally has been muted, but still has scope to run further in the next week or so. A major low may well be in and we’re currently seeing that start of the next bull phase. We have to leave the door open to a final correction due to the close proximity to the 2022 low, but ETH seems keen to get going and it’s more probable that BTC will play catch-up rather than vice versa — especially with the supportive macro conditions.
DXY
A rally sparked by the Fed hike was factored in here last week as the RSI was sitting close to oversold. The macro conditions are discussed in the summary, but in the next two weeks the top should be in — whether this is via a break of 114.78 is unclear, but the next test of 110.01/109.29 should see this key zone break and with a follow-on move through the trendline, signalling the new downward trend is in progress. (note 10th November CPI which could be the catalyst).
US 10 Year Yield
The dip below 4.00% was brief, but the trendline from June has been breached and whilst a short term rally has evolved, a sideways range looks likely. A break of 3.84% completes a top for a more substantial correction. We await confirmation.
USDCAD
With commodity prices a key driver of the Canadian dollar, it is interesting to see the potential for a head and shoulders reversal formation which, if completed, would be a key reversal signal for the US dollar. Resistance at 1.3836 should cap the current rally for a decline through 1.3580 to complete the top. Initial targets are at 1.2964. A two-day close over 1.3840 would suggest re-examination.
S&P500
Medium term resistance at 3896 has capped the first phase of strength in the SP500, but we maintain that the low is in and the market should continue to rally into year end. Key support is at 3636 should the downside extend further. A break of this level would imply caution, but we would only temporarily abandon the bullish view below 3506.
Ethereum
Our confidence is gaining that the major low is in. Whilst some doubts will linger until a major base is confirmed through 2035, macro conditions continue to move in the right direction to support the rally. Note a short term pennant should see a sharp move higher in the next day or so, but even if this should fail it would only interrupt the trend. The next major resistance zone is between 1720 and 1795, extending through there would reinforce the prospects for a base with final confirmation through 2035.
Bitcoin Daily Chart
Macro developments continue to improve and whilst BTC is lagging ETH, the signs that the market has based are increasing. Price action from June could be an accumulation phase and if BTC plays catch up through 21,868 and ultimately 25,401, the new bull trend will be confirmed. As we approach this level prospects will increase, but likewise any failure to hold support at 18,000 will revive the prospects of one final correction. This is not our favoured view, but we can not rule it out just yet.
Bitcoin Weekly Chart
We continue to include this chart whilst doubts linger over the potential base. Strategic support sits at 13,880/14,715 and should the market break lower, this area would be of great interest. A test of the zone is not required for a trend change, but we have to consider the possibility that one final break lower occurs, even if the long outlook is bullish.
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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