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:
Our long-term US dollar targets at 108 have finally been hit. With commodities continuing to decline, a strong US dollar is doing the Fed’s job at the expense of demand. This is spilling over into precious metals where key lows are approaching and with it opportunities. We remain long-term bulls of precious metals but still need some evidence of a consolidation prior to the next upward trend.
An indication that risk may begin to return to the market is the easing of bond yields, which could develop into a decent correction. That doesn’t change the longer upward path as we have crossed the inflationary rubicon, but it could instigate some risk on trades and cause the dollar index to ease appreciation and then reverse. Given that Brent crude oil is hovering above key support at $96, stops may be triggered for further short downside, but the major bull trend does not appear to be over and energy is unlikely to stay at discounted prices for too much longer, notwithstanding the other commodity markets’ performance.
BTC continues to trade in a balanced zone with long term support holding, but unable to develop gains to trigger significant impulse reversals. Paradoxically there are some alt-coins performing decently and showing attempts to base — whether this is a leading indicator remains to be seen, but we highlight the main levels to watch in this week’s document.
DXY
Long-term targets at 108 have been hit, yet there seems to be no sign of a reversal as yet. The market seems intent on shorting the US dollar which is producing a squeeze and until the sentiment reverses, the trend bias will be bullish. We maintain this is the latter stages of the trend, but still require evidence of a reversal before altering our bias. A break of 106.79 would indicate a minor top has formed.
US 10 Year Yield
The ‘head-and-shoulders’ top formation we have been tracking continues to develop with a completion point at 2.72% (neck/trigger line rises gradually over time). As long as yields trade below 3.24%, the reversal strategy will stay active with initial targets at the main trendline circa 2.25%.
Copper Futures
We discussed the potential top in copper in previous documents — the pace and extent of the decline highlights the scale of the demand destruction. Copper is entering a major support zone between 2.90 and 3.24 so evidence of buying may emerge soon. We maintain the long-term outlook is positive and view this as a corrective phase — below 2.80 would challenge that strategy.
Gold
We highlighted the support zone in silver last week. Gold is approaching some major levels, the largest being the 1670 low which has previously acted as significant support. With the RSI oversold, the prospects of a rebound are growing, but whether this is enough to change the trend completely will be answered in due course. Our long term view of gold remains bullish but needs a final sharp capitulation to invert the skewed positioning. Any break of 1670 would extend the bear phase, but we expect the trend to have reversed before year-end.
Ethereum
The importance of 1280 was raised by a test and reaction at this level last week. A break would complete a reversal pattern - the first for a very long time. Support is a 996, which similarly has been tested twice. A range-bound market can generate a platform for a more significant rally, so a period of relative calm can be viewed as a positive despite the inherent frustration. We are monitoring for any break and close below 996 — this would raise the risk profile with the key low at 808 coming into focus.
Bitcoin Daily
Having negated the continuation pattern set-up in a relatively short period of time, BTC has been drawn back to the 19,666 level where it continues to oscillate. The outlook remains balanced — a larger base may be forming, but it is still in development. The longer ETH trades in a range, the greater the extent of the rally once the new trend begins. However, support build-up at 18603 will be crucial as any break could send the market into another impulsive decline.
Bitcoin Weekly
Whilst last week’s rally breached resistance at 21,868 the 200-week moving average was a brick wall. Breaking this zone is key to beginning a major upward trend. Looking at the recent bars, we have had two positive and two negative bars which keeps the short-term outlook balanced. There is certainly more evidence required before the final low can be called from a big picture perspective.
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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