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:
Market expectations are beginning to align towards our view that US interest rate rises will not be as hawkish from September as initially priced in. We discussed last week that this could stall the dollar trend, and in the short term it has, but further ‘risk-off’ trades look likely as demand destruction continues. Equities are looking vulnerable to another sharp downward leg as commodities confirm our short-term bearish bias. This could synchronise with a final squeeze in the DXY towards 108, but we would be equally satisfied if the top has been seen given the extent of the trend. Interestingly yields have continued to stall meaning there could be a transition where the DXY goes up but is not supported by yields. This would further support our view that we are nearing the end of the trend.
A short-term reversal pattern in BTC held for a week, but the prospects of this being ‘the low’ are waning. The lack of clear impulsive price action that sets off a major rally has so far been absent and the broader forces of risk-off sentiment look likely to come to bear on crypto assets. Despite this, we maintain we are in the final stages of both the US dollar bull market and the crypto (and commodity) bear phase.
DXY
Despite some recent intra-day reversal signals, the DXY’s main trend is still intact and without a major reversal pattern, the bias has to stay towards the upside until a clear signal is presented. Whilst we continue to suspect the trend is in its latter stages, the climax signal has yet to be confirmed. Note a bullish crossover of the medium and long-term moving averages could produce some algo buying. Non-farm payroll data is released on Friday 8th July, this has the potential to reverse the trend.
US 10 year yield
Yields have edged lower, but again this retracement is not enough to indicate a major top, despite the late stage of the trend and our dovish expectations of interest rates from September. A break of 2.70% would confirm a reversal, but absent any other types of reversal signal, a consolidation/ attempt to press higher would be in line with the primary trend direction.
SP500
Equities remain in a corrective phase and despite the recent rally, there hasn’t been enough of a signal to reverse the downward trend -not least the intermediate resistance line which remains intact. Coupled with this, the VIX continues to trade at elevated levels implying caution. The 50% fibonacci target a 3504 should act like a magnet over the coming weeks, but could also provide an interesting rebound opportunity — if only for a short-term bounce. Note that Chinese and Hong Kong indices look set to reverse a major trend from bearish to bullish.
Hong Kong Stock Index
The main downward trendline in Hong Kong stocks is still far away at 24,000, but not as far as it was. Following a few months of consolidation, it is worth considering a reversal pattern could be completed soon. The resistance zone between 22,705 and 22955 is major and if breached would be a strong indication the bear market has ended. Asian equities are uncorrelated to USA equities and the move is more likely to be explained by future weakness in the US dollar. Trading over the intermediate m.a. (currently at 21024) would affirm the reversal prospects.
Ethereum
Having held support in the 828/900 zone, it is still unclear if the market has formed a major base. It can take many weeks to form a low, the important aspect is prices do not break below the ‘panic’ level at 808. With equities gearing up for another down leg, crypto assets could be dragged down with them, and should 808 break this week, we see the final low being in the 672 zone. This should be the final stages of the trend, even if the route is via one last correction.
Bitcoin Daily
Last week we highlighted a minor reversal pattern, yet BTC has failed to build materially from this low and the recent price action is approaching the previous major support at 17,592. Whilst it is possible for this to occur in a base-building process, the extent of the downward trend means caution is the primary strategy. Should 17,592 be breached, the next major (and final low) would be at 14,715. The context of this correction is still within the parameters of a major upward trend, so we continue to look for evidence that it has resumed.
Bitcoin Weekly
A spike in low and extreme bearish sentiment has seen a pause in the trend, but the lack of conviction in the rally is a concern. As volatility can be high in BTC, anticipating a drop towards 14,715 should be factored in this week as the rebound has begun to reverse and the market remains below the 200-week m.a. at 22,485. The RSI shows a deeply oversold reading, but this does not guarantee a recovery.
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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