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:
Thin summer markets are nearing completion as we approach the end of the holiday period. There are some distortions that could continue to widen, such as the US dollar rallying, but we maintain this will reverse with equal vigor when the time is right. It may take a move as high as 110/112 in the DXY before this happens, but we are looking beyond this phase for when the reversal takes hold.
Presently the DXY is above 108 and is flirting with new highs, but commodity currencies do not support a broad US dollar bull view and the Euro may be close to snapping back against the dollar — yes this could be via new highs in the index, but we are wary of a ‘trap’ type of breakout. US interest rate expectations remain at odds with the inflationary picture. Either the demand destruction is so large inflation will be tempered (ergo interest rate outlook is doveish and risk-on resumes once the jolt lower has played out) or inflation will run hot (therefore buying equities and base metals should afford protection (ergo other countries play catch up with rate rises and the US dollar loses). Naturally, these suppositions need the market to respond — having called for a correction last week, we expect equities to rally and Gold, Silver, Copper, and crypto assets to resume impulsive trends. If not immediately, soon.
DXY
The dollar has pushed higher and our bearish view is being fully tested. We acknowledge that a push into a new high looks inevitable short term (perhaps as high as 112), but the fragmentation of the rally and signs of ‘risk-on’ trades are at odds with further US dollar strength. A sharp decline from current levels would be the ideal signal, but this is perhaps optimistic so we will continue to monitor signs of a reversal whilst accepting there could be a further squeeze through the 2022 high at 109.29.
US 10 Year Yield
We maintain the market could be developing a more complex top given the truncated move below the neckline and recovery over the downward trendline. The current zone is relatively neutral, with a break of 2.80% implying a resumption of the downward trend and a cross through 3.24% pointing to a more significant rise in yields. We await confirmation.
Gold
The lower bound of our corrective zone was 1730 (1730/1760) where we anticipated a new impulsive trend. Whilst still tentative, support has been found and a new upward trend is developing. A retest of the previously breached trendline is occurring at the time of writing and a push towards 1787 and then a break of 1807 would embolden the bulls. We target the 200-day m.a. as medium-term targets and will expand the outlook when the bull move is on firmer footing. A two-day close below 1730 would negate our bullish view.
SP500
The lower bound of our support zone at 4115 has been hit producing a minor rally. The extent of the upward trend from June leaves room for a larger correction, but if the rally continues to build this week, it would be significantly bullish given the number of bears calling for a considerable decline. We target 4312 (200-day m.a. + break of the downward trendline) on the next attempt and will stay bullish whilst above the developing upward trendline shown.
Ethereum
Last we highlighted how the macro conditions could cause a temporary breach of 1720. ETH is now trying to recover this level and the price action continues to unfold in a broadly bullish manner (note the medium-term m.a. has turned upwards and should act as support if tested — also the break-out level of 1280 has not been retested). Targets remain at 2144 and we hold the view a major low is in whilst the developing upward trendline is sustained.
Bitcoin
We allowed for a retracement and test of 21,868, preferring to hold a bullish view with prospects of a break of key resistance at 25,401. This support level has been overshot, and with the market resting on the main upward trendline, we have to exercise caution until an impulsive move is confirmed. This remains our preferred bias as BTC is on the wrong side of the medium-term m.a. also and needs to recover it soon. A close below 19666 negates the bullish outlook.
VanECK Semi Conductor Index
A good recovery in Tech stocks is a key positive metric and the formation of a potentially bullish ‘inverse head and shoulders’ reversal pattern in the VanECK semi-conductor index suggests Q4 could see an upside surprise for the markets. We continue to track the reversal scenario whilst above 208.
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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