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:

So the Fed surprised the market with a 75bps hike, but all that really has done is increased the burden on companies and individuals trying to adjust for higher energy prices and invoke more demand destruction. The situation is precarious as it could precipitate a market rout which they may not be able to reverse, even if they rein back on interest rate hikes — which we still expect them to do so as the stagflation environment persists. This should become evident as we look for evidence from the short-term yield curve from September 2022.

The sentiment is now so bearish, a contrarian rebound looks likely. The Fed announcement was always going to be a key inflection point, but whilst it should herald a short-term drop in the US dollar and rebound generally in risk, we have to stay cautious until further evidence is seen of a major low. BTC could become a safe haven but would need to decouple as a ‘risk-on’ asset. We have been patiently waiting for a test of major support at 19,666 and given that we saw a test close to this zone, we should be prepared for the beginning of a new trend. At this stage a small recovery is likely, but we have to tread carefully and await greater confirmation before calling ‘the’ low. There are signs the US dollar will weaken this week — perhaps even sharply, but the implications for the risk assets will need to be monitored closely.

USD Index

Note this is a four-hour chart as we examine a potential short-term set-up. Our bullish view of the US dollar has reached a crossroads. Whilst the bigger picture charts still look positive for a move to 108.00, the short-term chart is evidencing a minor reversal pattern that implies at least a correction back to 102.00. This is confirmed on a break of 104.66 and given the “buy the rumour — sell the fact” scenario, a sharp move could be in prospect. Any failure to breach 104.66 this week will put the emphasis back on the long-term trend.

US 10 Year Yield

We maintain targets at 3.60%, but with RSI running hot and a possible reaction in the US dollar looming, be on watch for a sharp drop back through 3.25% for an intermediate correction. There isn’t as much evidence here for a reversal, but given the US dollar chart, we are trimming our bullish sentiment. This does not change the big picture bullish strategy as yet.

S&P 500

We have held a bearish view of the SP500, looking for a test of fibonacci support at 3504 which intersects with support from the long-term m.a. and prior resistance (now support) at 3393 from the pre-covid 19 sell-off. In the near term, a build-up of shorts post-Fed announcement may cause a squeeze back upwards, but the market needs to recover 4114 or exhibit a signal of a major low before we will discuss the prospects of a major reversal. Resistance on a rebound is at 3930.

Oil

Finessing our view from last week, 114.21 (previous resistance) remains in close proximity which implies a slight stalling of the trend. To be prudent we would consider a retracement back towards 108 prior to the surge in oil, confirmed on a loss of 114.21. The two main barriers — resistance at 131.66 and 140.00 remain of major interest to signal 153 in short order.

Ethereum

We described 1700 as a ‘cliff-edge’ level for good reason — the market was trapped in a potential descending triangle confirmed on a break. Because alt-coins with a similar pattern had reacted initially positively, we entertained a possible minor retracement before trending lower last week. That was short-circuited on a break of 1700 (volatility sometimes requires daily and even intra-daily updates). By proxy we are examining a basing zone in BTC before calling for a major low here. There’s enough for a short-term bounce, but we remain cautious until all the reversal signs are clear.

Bitcoin Weekly

BTC is in a long-term support zone between 22304 (long-term m.a.) and 19666. Sentiment may be bearish enough to call for a reversal of trend, but we also need confirmation from price analysis (a ‘spike reversal’ is common to this type of major low). Long-term RSI is also oversold, but this is more of a confirmatory signal once it trends back over 30. So for a short-term ‘rebound’ play, between 18,000 and 19,666 is key. If the lower bound is breached, the support zone would be revised down to 14,715 Fib support.

Bitcoin Daily

Following a confirmation of the bear trend on a break of 28,547, the ‘risk-off’ sell-off has been mirrored in many asset classes. BTC is now close to major support and sentiment is running bearish hence a short-term relief rally should occur from where the trend can build. Despite this more evidence is needed to call a major low. Between 19,666 and 18,000 there is critical support — if breached the next support is 14,715.

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.

Transcribed to Medium

Original Technical Analysis provided by

Paul Rodriguez — ThinkTrading.com

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