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 core view has been the US Fed will move to a doveish stance after the release of today’s CPI number due to the lag in the response to weaker commodity price data. Paradoxically, we remain bullish on base and precious metals for the long term, which will mean inflation will run hot, but as far as ‘risk-on’ — the equity markets (more precisely value rather than growth stocks) were already ahead of the game and had started their rally some weeks ago. A short term correction is near, but we remain bullish into 2023 and beyond.
A weaker US dollar continues to play out with the DXY completing a short term topping pattern, confirmed by commodity currencies (we highlighted the Canadian Dollar last week) and even the ‘collapsing’ Japanese Yen has managed to strengthen significantly. We expect a major US dollar bear trend to unfold — but it would be unlikely to see this move in a straight line down, more likely a larger range will develop and the trend will get underway in earnest in 2023.
The torrid situation in the crypto world is the sort of news that comes near a major low — usually. We highlighted the possibility of one last down-leg before the ‘winter’ was over, but the sharp correction was at odds with the wider bullish macro scene. It has now been revealed what was causing this disparity and once the dust has settled, the trend should consolidate and begin the next bull phase. A caveat is unless there is another ‘shoe to drop’ and how the market trades over the next few weeks will be indicative of this. Macro factors will continue to be a positive factor but may not be enough to change the trend whilst sentiment is so negative. ETH structurally remains more bullish, and whilst that is a small positive, a synchronisation of assets (i.e. BTC, and major alt. coins) is needed to confirm a major impulsive trend.
DXY
A break of the trendline and confirmation of a top has occurred with the catalyst the US CPI release. This confirms the short term trend lower and we look for a test of 102.35/103.42. This is not enough to change the direction of the moving averages, which continue to point in a classic bullish configuration. This anomaly will likely resolve in a large sideways range for the coming months before the major downward trend begins. There is a potential larger topping pattern that we will discuss next week.
US 10 Year Yield
A break of the short term trendline and a completion of a double top formation reverses the trend and checks the broader markets’ expectation of burgeoning rate rises. A test of 3.50% is the next target, but it may be difficult to breach this key level. A range will be viewed as bullish to the asset markets as cycle peaks were anticipated to be much higher.
Copper US$ lbs-
We maintain a bullish view of copper and the recent weakness in the US$ has propelled the market towards key resistance at 3.78. Our long term targets remain at 3.96, but we may have to revise this higher by year end. A two-day close below the medium term m.a. at 3.50 negates this view. US 10 year yields — Daily Bar Chart Copper -US$ lbs — Daily Bar Chart 3.50% resistance (now support) Break of the short term trendline and now a double top imply further downside. Double top completed Potential Neckline of a major.
S&P500
Relative to the Dow Jones, the SP500 has been under-performing as the tech sector heavy-weight components weigh on the emerging bull trend. We remain bullish (our core view is the major low is in) with the macro conditions supporting our bullish view. Whilst above 3636, this view will stand, unless other inter-market analysis calls for a change in trend. The two major obstacles ahead are; the 200 day m.a. and the main downward trend — both of which we expect to be breached by Jan 2023.
Ethereum
The nascent rally failed at the 200 day m.a. with resistance at 1720 untouched. We were gearing up for the prospect of a bullish trend here, but it was contingent on 1720 breaking. A major base can only be confirmed through 2035 and whilst ETH continues to outperform BTC, the close proximity of the 2022 low will remain a concern. Whilst the uncertainty continues, the 200 day ma. is the marker for a bullish recovery.
Bitcoin Daily Chart
The equivocal nature of the market has been resolved by a break of 18,000, setting in motion another leg of the bear market. 14,715/13,880 is the next major support zone (see long term chart below) and until we see evidence of outperformance against ETH, we will maintain a cautious view. Despite the gloom, the major upward trend is intact and will only become a critical concern if 13800 is conclusively breached. Admittedly with current vol. this is thinner margin than ideal.
Bitcoin Weekly Chart
The reason for including this chart each week was in case the break lower we have just witnessed occurred. We now look for a test of, and reaction from strategic support at 13,880/14,715 prior to evidence of a resumption of the bull market. Undoubtedly there will be some short term bottom-fishing, but it would take an out-sized rally to reverse the current technical picture and this seems unlikely.
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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