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:
Phase one of the US dollar reversal is complete with a rebound unfolding on cue. The question here is will the rally peter out or push through for another (final) phase? For the moment, we maintain that the US dollar has topped — a view not shared by the majority of analysts. There is evidence of rising US yields, but correlations can and will change — a rise in yields could even cause the US dollar to fall. ‘Risk-on’ trades have performed well and we highlighted the potential for a correction in base (and precious metals) last week. The extent of the correction, and when the buyers emerge will be key to market sentiment and therefore the direction of asset markets into Q4.
The S&P500 rally has carried it right up against our target line and has been impervious to recent yield rises. This confirms the market is caught short and looking for a retracement to exit positions. However, a correction is inevitable and we view this as a buying opportunity, not the beginning of a new bear market. We may have to re-assess this view if the drop becomes more aggressive, but as long as the US dollar has the potential to weaken, equities should project higher over the coming months. It is a delicate point in the markets so we will continue to monitor signs that suggest the contrary.
Crypto assets could soon move uncorrelated to the US dollar and yields. We are braced for a corrective pressure given that BTC failed to extend higher last week (counter to our expectations). Overall the trends remain positive and once the market gains confidence, the sensitivity to interest rate moves should ease.
DXY
Having held the accelerated upward trendline and breached the fledgling downward trendline in the process, phase one of the US dollar bear trend has concluded. As the market assimilates a rise in yields, the DXY could remain firm with the potential to retest 107.10, where the downward trend should resume. For the moment we will resist reversing our view that the US dollar has topped, but if we get a close over 108.00 it will be compelling.
US 10 Year Yield
A break of the downward trendline has dented the bearish bias, but it is possible the market is developing a more complex top. A two-day close below 2.80 would re-establish targets at 2.49% and then 2.25%. Only rally through 3.24% would suggest a return to rising yields.
Gold
Gold has corrected back towards our 1760 target in the context of a developing bullish trend. Evidence of buying should emerge soon and we target the 200-day m.a. — currently at 1841 as medium-term targets. We will stay bullish all the way down towards 1730, but a two-day close below the latter level, coupled with other evidence of a resurgent dollar would cause for a review of the medium-term bullish outlook.
SP500
Our target zone of the 200 day m.a. and the main downward trendline has been hit. A retracement from this zone is not unwarranted given the elevated RSI reading and extent of the rally. We anticipate 4115–4200 as a support zone and look for an eventual break of the downward trend as confirmation of a major bull phase. A close below the medium-term m.a. — currently 3977 and rising — would negate our bullish view.
Ethereum
ETH continues to lead BTC despite our expectations the performance gap would converge. The price trend is still bullish, but given the macro conditions, a test or even a temporary breach of 1720 should be considered. We remain bullish for 2144 and will hold the view a major low is in whilst the developing upward trendline is inviolate.
Bitcoin Daily
Last week we expected a break of 25,401 and an acceleration of the trend. This was wrong and the market remains in a consolidation phase that has dropped below the accelerated upward trendline. Overall, the price action is bullish and we hold out the prospects of a break of key resistance at 25,401, even if this is via a test of 21,868. Medium-term targets are at 28,547 and will remain bullish whilst above the developing upward trendline shown.
Bitcoin Weekly
This chart highlights why we are bullish long-term. Key resistance from late 2017 has been retested and respected as support. The developing trend should be of a significant magnitude and the current skepticism of crypto assets signals a market that is not overly skewed (being contrary at market inflection points can be a reliable indicator). We stay bullish whilst above the developing upward trendline.
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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