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:
We maintain that the final stages of the US dollar rally are upon as and major risk-on rally is not far away — perhaps days, perhaps weeks, but not months. Interestingly the US dollar index (DXY) has not surpassed the previous resistance high at 114.85 despite the strength of the NFP data. A new high cannot be ruled out, but with expectations skewed towards higher US rates, there is scope for disappointment and a sharp correction. As mentioned, we are eyeing the data releases for sentiment to change and initiate the new trend. A break of 110.01 from a technical perspective would be a good start.
US 10-year yields are hovering below key resistance at 4.00%, A major psychological level. Our long-term view on yields is bullish, but we expect a reversal phase to kick-start the risk-on rally, and turning downwards from this current zone would be an ideal candidate for trend change. Crossing back through support at 3.84% would be a solid initial signal.
Patience is still required in the Crypto space. Macro factors continue to weigh and whilst volatility has dropped, the price action is still too close to 2022 lows in BTC for comfort. As everything hinges on the US dollar (more accurately the interest rate trend which in turn is currently correlated to US dollar strength) we have to wait potentially a few more weeks before a conclusion to the downside trend occurs. On the plus side the ensuing rally should be worth the wait.
DXY
The trend has definitely slowed with resistance at 114.78 still unbreached following a strong NFP number. Because momentum still favours the upside we are awaiting a more pronounced signal to indicate the trend is over. We still cannot rule out a break into new highs, with resistance at 118 the near maximum we would expect from this trend. The medium term trendline comes in at 110.80 and a break of that would set-up a more substantial topping pattern, confirmed through 110.01 support.
US 10 Year Yield
Yields continue to consolidate below the key 4.00% If a break is to occur, it would normally be in the next week, else the risk will revert to the downside. 3.84% is the first key support level, but a break of the main trendline would be the initial indication of a trend change. We are bullish long term, but expect a trend reversal phase to kick-off the broader ‘risk-on’ rally.
Gold
The downward trendline stemmed the gold rally, but the sector is looking broadly positive and this will add weight to the signal when it eventually breaks. 1670 support is key, but as mentioned before, the rally will stutter until the US dollar trend has clearly reversed — hence a consolidation may be the best we can expect whilst the rally is ongoing. Our long term view remains bullish.
S&P500
Resistance at 3810 capped the short term rally, for a move below 3636 support. As the market is playing out the final stages of a trend retracement, we will look for evidence of a major low — a high probability area is the 50% retracement point from the 2020 lows to 2022 high at 3506 (below that 3394 is a massive level). This longer term chart highlights the broader upward trend — if the market does rally soon, this would be consistent with a secular null market. Sentiment remains bearish which normally indicates a low is approaching.
Ethereum
A break of the lower support line of the flag/pennant formation keeps the focus on the downside, but admittedly the move is not conclusive. Macro factors continue to weigh on the crypto space, but we maintain that these factors are nearing completion. However, we need to see an emerging trend to build on before changing our cautious view, despite our long term bullish expectations.
Bitcoin Daily Chart
A strong impulse move is required to take BTC out of the danger zone as the gap between 2022 lows at 17,593 and the current level is close. At a minimum, a two-day close over the medium term m.a. at 20,394 is required (which would break the resistance line in the process). For the moment, we remain cautious until the situation becomes clearer, despite our long term bullish view.
Bitcoin Weekly Chart
There is no material difference week-on week as BTC hovers close to 2022 lows. We maintain strategic support sits at 13,880/14,715 and should the market break lower, this area would be of great interest. A test of the zone is not required for a trend change, but the close proximity to the lows requires caution.
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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