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:
The first sign has emerged indicating a possible top in the US dollar and a low in Crypto assets. 1280 resistance level in ETH (now breached) was the key level in ETH we have been tracking to call a short-term base. This, together with the developing reversal pattern in US 10-year bond yields, indicate risk-on could be coming back — and fast. Base metals are either in or close to major levels that present good risk/reward opportunities. (Note the copper chart in this week’s document).
Given that next week sees the Fed’s next interest rate move, the markets may be nervous this week, with the US dollar trimming losses and perhaps some short-term gains being given up in equities and crypto assets. However, once the announcement is out of the way, the direction should be clear — either a broader risk rally (favoured) or another defensive phase. There is a cushion of support to be tested in the SPX highlighted in this document, a breach beyond the support zone would indicate the bear phase has one final move ahead.
Gold & silver remain in a downward spiral. This is usual for an end-of-trend capitulation and we are tracking silver between 17.10/18.00 as this represents good risk/reward. Commensurate support in gold at 1670 should also produce a reaction. This is a key zone that should not be breached, but the market is subject to short-term overreactions. We maintain long-term bullish views and are getting ready for a reversal in this zone. Copper has retraced into a major support zone. It is important for the risk-on narrative that this turns soon.
DXY
A minor spike reversal has formed and we are tracking evidence that this trend is reversing. So far the extent of the decline is shallow, but we have seen a break of 106.79 highlighted last week. Significant reversal patterns usually take a few months to complete before the trend begins in earnest, so we have to be prepared for this, but the strongest indication of a potential top comes from the next chart of US 10-year yields. The next key support is at 105.82 and the 104.31 (medium term m.a.)
US 10 Year Yield
We are still tracking the ‘head-and-shoulders’ top formation with a completion point at 2.76% (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
The first signs of short covering has emerged from the support zone we have been tracking with a rebound at the 61.80% fibonacci support point (3.15) — although in the context of the decline, the rally is still minor. Despite this, the current zone is a good place for the main trend to resume. A decline to 3.00/2.90 would not materially affect our long-term outlook, but below 2.80 would suggest our reversal strategy was premature.
SP500
Adding to the ‘risk-on’ signals is a short-term basing formation (double bottom) in the S&P 500. This has formed below the intermediate downward trendline (currently at 4067 and dropping), but a reversal of this magnitude should have enough potential to reach and breach this key trendline. We will hold a short-term bullish view whilst above the 3884/3914 support zone.
Ethereum
ETH completed the first bullish reversal pattern for quite some time on the break of the 1280 resistance level highlighted last week. Having tested the first resistance point at 1625, the next major level is at 1720. It is possible that we have based from a long-term perspective, but a breach of 1720 is required. We will maintain a bullish view whilst above 1280 and discuss potential upside targets in due course.
Bitcoin Daily
We have been examining the consolidation phase for signs of either a reversal or continuation pattern with the recent impulse move confirming the former position. Whilst a compressed version on ETH, BTC has the potential to squeeze towards the main downward trendline and towards the next major resistance point at 28,547. The prospects of this being a major low have increased, although we need further evidence, which should be forthcoming in the next few weeks.
Bitcoin Weekly
Breaking the 200-week moving average and holding above 21,868 were the conditions discussed last week for a major rally in BTC. This has lifted the short-term equivocal price action to form a basing formation. Coming as it does close to the 2018 resistance, this would be the perfect area to commence a significant rally — although it is still early days for this call. We will stay bullish whilst above 19,666.
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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