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:
SUMMARY: The dollar continues in the last phase of the bull run — the question is what will be the decisive data metric (or global event) that reverses the trend? Position wise, the market has tried shorting the dollar (paradoxically this has kept the trend supported as trends don’t normally end in this way), but this skew has reversed in recent weeks with the capitulation phase normally associated with the end of a major trend rearing its head. Whilst the ‘sell zone’ for the DXY at 112/115 has been hit, it is more important that the impulse trend to the downside begins. Non-farm payrolls (most likely out by the time you read this) could be that catalyst, but more likely inflation data on 13th October. Whilst economic data is not usually the preserve of the technical analyst, market psychology most certainly is and the expectations driving the markets are linked to the data most dominant in changing in market conditions, or in other words, what data is the market fretting over and most likely to upset the speculative ‘apple cart’.
Sentiment remains nervous generally as equities lurch around and cyclical fears (crashes usually occur in September and October) keep traders nimble. We are looking for a low to be achieved in the next few weeks (if this happens sooner then all the better) and the start of a major bull phase tied to a weakening US dollar. This could kick-start speculative interest in commodities (some signs have already appeared) and in turn boost the crypto space.
The question of whether BTC will make a new 2022 low before the trend resumes is still unclear. This is obviously frustrating to many, but a final shake-out of longs should leave bargain basement prices for the coming cyclical bull phase. Once the base is confirmed we will report the confirmatory signals and project potential upside targets. For now there continues to be fragmentation in the majors/alt-coins where clear winners and losers are divided. This will narrow as we approach the start of the next bull run.
DXY
More signs the top of the trend are emerging. The 115 DXY high may still be breached, but the trend is not smooth and the associated volatility at the end of the trend is increasing. Whilst the steep trendline has been breached (as is normal for the final stages of a move), the medium term m.a. at 108.28 (close to the trendline at 108) could hold the key to reversal in algo. positions from long to short. We will report a topping pattern signal when evidence emerges — if pressed for a time-line, a reasonable estimate is one-week to one month.
US 10 Year Yield
Last week we highlighted a few signals that yields could reverse, namely short term volatility, psychological resistance at 4.00% and the rising geopolitical tensions. Having breached a support line, the trend has been dented, but to extend the correction, a reversal pattern is required to challenge the main upward trendline from March 2020. Whilst this may be closer, it is not yet conclusive. Significant support at 3.50% (prior resistance) has held so far, a breach would increase the probability of a top.
Gold
Gold is at an important crossroads having recovered sharply from last week. Hovering below the main downward trendline/medium term m.a. the market appears to be readying for a break. Whilst this may fail, support at 1670 should hold retracements and the emerging signs of a bull trend in precious metals generally are now adding to the upside potential. Our long term view remains bullish, but until the US dollar’s trend is conclusively reversed, we can not align the medium term trend with our long term expectations.
S&P500
Sentiment is increasingly bearish implying the prospects of the final phase of the downward trend is approaching. Despite this, we cannot rule out one more attempt at a new 2022 low and in this regard resistance at 3810 may cap gains (top of the trend channel) for a retest of 3636 and below. However, long term we retain a bullish outlook and new lows will be placed in the context of that opportunity. Above 3886 would bring forward expectations of the bullish trend.
Ethereum
We are still braced for a correction beyond 2022 lows with one more week to go before the danger has passed. Short term price action resembles a flag/pennant formation which usually resolves quickly in the direction of the dominant trend (downwards in this case). After one more week the probability of completion will reduce. Long term we remain bullish and content we are approaching the final phase of the correction prior to a major bull market.
Bitcoin Daily Chart
Having recovered 19666 resistance, BTC has failed to extend the rally hitting a downward resistance line and in close proximity to the medium term m.a. For these reasons we contend the market is still in a precarious position and an attempt to hit lows beyond 17593 can not be ruled out at this stage. Our long term view remains bullish and we await the reversal confirmation to begin this phase.
Bitcoin Weekly Chart
We continue to observe the long term chart as it identifies strategic support in the 13,880/14,715 zone should the bear trend take one more downward phase. It is a crucial week for BTC, the lack of rally has been frustrating and whilst the potential still exists for a formation of a major base, the close proximity of 2022 lows requires caution. Preparing for a test of what could be a significant long term opportunity is prudent.
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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