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:
Last week’s CPI number had potential to be the pivotal change in market dynamics and the following price action has been encouraging. The most sensitive of risk-on indicators, the equity market, saw an initial swing downwards ( to a key Fib. level in the SP500) and a sharp rally. This type of price action is referred to as a ‘spike’ and implies the prior (downward) trend is over. Whilst it is not so clear that the DXY trend is over (and this will remain a fly in the ointment until we get confirmation) we continue to sight the lack of upside progress in the DXY when data and sentiment support a further extension. This divergence is normal during major trend changes, but we still need the price to respond impulsively lower. Yields have continued to rise, but the prospects for other central banks to play catch-up on the inflationary story makes it possible for yield rises to have a lower correlation to US dollar strength from now. The divergence will be resolved soon.
Crypto assets continue to consolidate and the muted follow-through to the bearish set-ups last week could spark a minor rally as stale shorts are covered. This does not mean the sector is out of the woods, merely that a decent rally could be at hand, mirroring the equity bounce. There are some pockets of strength in the alt-coin markets and, whilst this could be a case of the tail wagging the dog, it is nonetheless a minor positive factor. With the 35th anniversary of the crash and macro news flow negative, the markets have shrugged off bad new relatively well thus far.
DXY
The resistance high at 114.78 remains unbroken despite positive sentiment. Despite the muted response to recent data releases, a trend ending signal is still lacking and we await a break of trendline support and the medium term m.a. as confirmation of a major change in trend. Breaking 110.01 support would also complete a double top formation. We cannot rule out an attempt to clear stops over 114.78, but the clock is ticking for the bulls.
US 10 Year Yield
Yields continue to rise, having breached the key 4.00% level. With the main support line still in tact further upside can not be ruled out. However, divergence with the DXY must close by either a correction here or a rally in the DXY. This will be answered in the coming trading days. A decline through 3.84% is the first sign of a top, but a major correction would trigger through 3.5%.
Copper
Copper is a good measure of economic activity and having hit a major Fib. support in July 2022, it has clung to the main upward trendline. Whilst an impulsive upward move is still required, the stabilisation is a bullish sign in itself, with the next phase a push higher through 3.50. When the risk on rally commences a move back towards highs at 5.00 should develop into 2023.
S&P500
A spike reversal is a significant signal, coupled with a test of major Fib. support at 3506 (a minor breach is acceptable in a fast moving market) — this implies we could have seen the low and the trend should initially consolidate, and then move higher into 2023. The implications are the risk rally has begun whilst above 3510 we will hold that view. Spike reversals can form part of a larger reversal pattern — hence a decline back to 3560 as part of the basing process should be considered
Ethereum
We remain cautious, but given the lack of downside follow through and the improving macro conditions, a short term rally may be close, if only because the bearish flag formation failed to extend last week and stale shorts may have to cover. Long term we are awaiting the signal that the main downward trend is over — for the moment it is not conclusive.
Bitcoin Daily Chart
The market is little changed from last week and hence our view remains the same. The close proximity to the 2022 low implies caution — but interestingly, the medium term m.a. and resistance line are now close enough for a small rally to break both. This is a positive factor of a consolidation of this type — it could be base building for a more substantial move. We await further confirmation.
Bitcoin Weekly Chart
From a big picture perspective there is no material difference week-on week as BTC hovers close to 2020 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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