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:
Once the dust has settled from the US Fed’s 75bps hike on the 21st September, the outlook should become clearer that yields are approaching the upper end of the range and the US dollar is nearing a top. There was an elevated probability of a 100bps hike — paradoxically would have ended all doubt about where the top would be as, after a spike in the dollar, the market would have settled down to the realisation rates are being yanked higher too quickly. As it stands the 75bps move will leave some room for doubt as to the size of the next move higher — big enough doubt to provide support to the dollar. Once again given the outcome, the DXY is still only marginally higher than 110 and still within our reversal zone. This may extend to 114, but we maintain this is nearing the end of the trend.
Equities will stay nervous until it is clear rates have stabilised (hence a 100bps move would have helped settled those nerves). Technology stocks are under pressure and fragmenting, and the S&P500 is edging towards major support. European equities (other than the UK) look set for an extended correction, which should be the catalyst for a broad reversal in yields (and a move to a risk-on strategy).
We mentioned recently gold should puncture major support, but given the heightened Geo-political risk it seems unlikely to diverge from the rest of the precious metals for too much longer. Silver, platinum and palladium are exhibiting more bullish charts.
We remain cautious to further downside potential in crypto assets — BTC has held above the 2022 lows and ETH has tested and breached the original break-out level at 1280. Despite the short-term uncertainty, the long-term outlook remains bullish and either the base is broadly in now, or a final downward phase will complete the correction.
DXY
A knee jerk reaction where the DXY breached 110.80 resistance was caused by the Fed’s rate rise. Ultimately the market isn’t appreciably higher, although it is reasonable to expect further upward momentum and a test of 112 and at the outside 114 is still possible. We maintain this is the last phase of the trend and RSI divergence continues and is another factor pointing to the final stages of the trend. A break of the medium term moving average at 107.62 and then the trendline shown would solidify signals of a reversal.
US 10 Year Yield
A push into new highs was expected, but this feels like a late stage to become bullish and we retain a cautious view here. The first confirmation of a top would come from a cross back below 3.49% (breaking the short term trendline shown in the process). In the interim yields may squeeze further with 3.72% the next major resistance point.
Gold
Having breached support at 1670, gold seems to be diverging from other precious metals implying the move downwards is more an exception than the rule. Whilst we have to respect the breach, a sharp recovery and break of the downward trendline and medium term moving average (both aligned at 1739) would signal a long term recovery is underway. RSI divergence is also evident, but does not guarantee further lows will print at this stage.
S&P500
We outlined our cautious view last week and a break of 3886 has kept the bears in control. They will target 3721 support next and, if breached, the outlook will deteriorate quickly as the lows at 3636 will act as a magnet. To become strategically bullish a break of the 200 day m.a. (4247) or the main downward trendline (which sit close to it) is required. The macro conditions don’t support a recovery and it would be prudent to factor in a sharp downward move.
Ethereum
ETH has succumbed to broader macro conditions and whilst we allowed for a correction last week, a break of 1280 moves our view to neutral here. To restore the bullish view, a close over the medium term moving average is required and, to cement lows, a break of the main resistance at 1718.
Bitcoin Daily Chart
17,593 support is coming into focus. This key support level needs to hold, else the risk is for the next major Fibonacci support at 14,715 (see weekly chart below). Our outlook here short and medium term remains neutral until we get further confirmation. The market may be basing, but needs to hold over 19,666 for two-weeks minimum to put that back on the table. We still hold a long term bullish view as the macro conditions should have reversed by year-end — hopefully before.
Bitcoin Weekly Chart
This long term chart highlights the next potential major support level should the June 18 lows be breached. The zone between 13,880/14,715 represents strategic support if the bear trend takes one more downward phase. We prefer the view that the market has already based, but observing potential outcomes is prudent when the outlook is less certain.
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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