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:
As we approach the November CPI data release (13th December) the market may fret for two reasons; 1) If Inflation is stronger than expected, a sell-off will occur due to the prospects of higher rates and 2) if inflation is weaker than expected, are we entering a recession? Our core strategy remains that inflation will continue to fall and the US Fed will become more doveish with smaller rate hikes a certainty. This will be supported by the CPI print. What may also be in prospect is talk of a rate cut in 2023. This potential may appear in the first half of 2023, but will likely dissipate after that. To be clear at this stage we are not saying a rate cut will occur, just that the swing back from rate hikes to neutral could make this a potential talking point . Given the decline in commodity prices, especially oil, it is clear demand destruction wreaked by a higher US dollar, slowdown in China and higher energy prices have all taken their toll. The pivot could well take the market by surprise.
Equities are in a grey area here as it is possible they could react badly to a too rapid a slow down in inflation — mainly because there will be a period where the Fed hesitates in order to gain more concrete data of the slowdown. However, the market is primed to rally in 2023 and any short term concerns should evaporate as 2023 unfolds. We project new all time highs for 2023/24 in the S&P500 and risk-on should run hot in line with a weakening US dollar throughout the year. The big question with Crypto is; have we seen the low? Sentiment wise this is entirely possible. Price action is muted, which is understandable give the time of year and recent events. Despite this, ETH continues to outperform BTC and holding above 2022 lows is particularly notable. BTC continues to lag, but whilst above the 13,880/14,715 support zone we hold a bullish long term view, acknowledging it has significant technical challenges ahead.
DXY
A major bear market in the US dollar is our central case for 2023 and beyond. The sharp decline from 114.78 implies this trend has begun. There are some final support levels to break to complete the bearish picture, the most important being the main upward trendline, but we maintain the macro trend should be lower from here on in. There is scope for a retracement as discussed in the main summary, but rallies to 108.00 are seen as an opportunity to sell US dollars strategically.
US 10 Year Yield
Yields continue to ease lower in line with our broader strategy that the US Fed. will not raise rates as fast the broader market has expected. However we mentioned last week that rumblings may appear for potential for a cut in rates in 2023 and this is borne out by yields holding below 3.50%. Overall support for a spring-board risk-on move is gaining.
Crude Oil
Whilst our long term view of Oil is bullish, the intermediate bull trend was invalidated on a break of $96. The continued decline is in part due to demand destruction (supporting our doveish rate view), and should be seen as bullish for risk-on in 2023 and beyond. Given eventual recovering demand, the downside is limited. We see the zone between 60–69 as a key support area where oil should consolidate before embarking on the next major trend.
S&P500
The SP500 hit a brick wall close to the 200 day m.a. and 4114 resistance. As the market frets about next week’s CPI number, the market may ease lower with 3810/35 the next support zone. However, we maintain our bullish view and look for a recovery into all time highs in 2023/24. We will maintain a bullish view whilst the main upward trendline is in tact.
Ethereum
So far the rally is encouraging as it allows for a shallow upward trendline from 879 to 1071 to be drawn. Whilst above this line we will hold our bullish view with 1445 (200 day m.a.) the next target. Sentiment remains skewed to the bearish side and despite this, 2022 lows remain unbreached. Whilst it is too early to call the end of the bear trend, the current move is encouraging.
Bitcoin Daily Chart
BTC has held above 2022 lows and considering the bearish sentiment, is performing well in the short term. This is normally associated with a strategic low, but there are a confluence of bearish hurdles to overcome — 17,592 is the most immediate. In addition the 60 day and 200 day m.a. plus resistance from a declining highs will also need to be breached to start a secular bull market, hence a longer period of consolidation may be in prospect before the secular bull market begins.
Bitcoin Weekly Chart
If we are wrong about the prospects for an imminent rally, the next major zone of strategic support is at 13,880/14,715. This long term chart puts the recent price action into perspective — the main trend is still bullish and the current retracement is still part of a correction in a bull market. However, any decline below 13,880 would be a very bearish development.
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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